The Biggest Downside To Paying Off Your Mortgage Early

If you're focused on paying off your mortgage, good for you. It's generally always good to pay down debt. However, I'd also like to share with you the biggest downside to paying off your mortgage that may surprise you.

It's been seven years since I paid off my rental property mortgage. It was a mortgage for $464,400 I took on in 2003. For the first year after paying off my mortgage, I felt great. But after that, the satisfying feeling of getting rid of debt wore off.

Perhaps the reason why the feeling was so ephemeral was because there was no congratulations card or fancy French Laundry dinner celebration. The only thing that changed was the extra ~$2,500 a month in cash flow, which went straight to savings or investing.

Feeling More Ambivalent After Paying Off Mortgage Early

Before taking on this mortgage, I experienced an eerily similar feeling of ambivalence in my early 20s. After working for 60 – 70 hours a week from 1999 – 2001, while saving 100% of every bonus and 50% of each paycheck, I started thinking: what's the point of it all? 

Maybe I was experiencing a quarter life crisis back then. What I did know was that my enthusiasm for working in finance faded after the September 11, 2001 terrorist attack.

In 2003, with my lack of enthusiasm, I was *this* close to leaving San Francisco for Honolulu until I found a 2/2 condo overlooking a park in Pacific Heights for $580,000. Once I took out the $464,400 mortgage, my motivation to work hard shot through the roof!

Suddenly, my work felt more meaningful because if I stopped paying my mortgage, I'd lose my $116,000 down payment and trash my credit score. Without dependents, finally, I had something tangible to work hard for.

The Biggest Negative To Paying Off Your Mortgage

The biggest downside to paying off your mortgage is the potential loss of motivation to take risks and work as hard as you can.

Once you have paid off your mortgage, you no longer have as much fire to improve your finances. You may start slacking off in your career or entrepreneurial endeavors as well. As a result, your earnings power and net worth might suffer.

A mortgage keeps you hungry. If you are in your prime earning years and still on the path to financial independence, be careful. The natural tendency for all of us to take things easier.

Think about it. Without a mortgage, life is relatively easy. Your living costs drop down to hardly nothing. Food is abundant and cheap in this country. Meanwhile, there are a lot of cheap or free things to do for fun.

When life is easy, we tend to get soft. Not only do we get out of shape, we neglect our relationships, and ignore our finances. We take the things we have for granted.

Some of us might even developed the dreaded entitlement mentality, which tends to slowly drain our wealth and happiness. Watch out.

When you've got everything covered, only the craziest of people bother to take risks. It's irrational to work hard if you have no financial burden. When nobody is depending on you, there's no pressure to provide.

Forget about trying to start your own business on the side or get promoted when you can just enjoy life now. The biggest downside to paying off your mortgage early may be indifference.

But when you're older, you may regret taking things too easy when you had the most energy.

How A Mortgage Affects Behavior

Back in 2015, I made a new year's resolution to pay off the rest of my ~$91,000 mortgage. I unleashed an inner money-making beast.

Instead of continuing to leisurely consult part-time for 15-20 hours a week at Personal Capital, I got motivated to look for more consulting work.

Due to my desire to pay off my mortgage debt that year, I ended up taking on two more consulting jobs for a total of 60 hours a week for three months. One company was a Series Seed startup out of Y Combinator. Another company was a Series B startup in the finance space as well.

All three companies were fascinating to consult for. For three months, I was making around $30,000 a month. I used all of the money to pay down mortgage principal and invested the remaining 20% in the S&P 500.

Having a mortgage made me want to boost my income. Three months of working 60 hours a week with three firms was as much as I could handle. But I figured out my limit, which is helpful in understanding one's potential for work and money.

Took Things Down A Notch After Paying Off My Mortgage

As soon as I wrote the final mortgage check in 2015, my whole attitude changed. First, I stopped looking for more consulting work even though two out of the three contracts ended. Second, I decided to go on a 3.5 week trip to Asia to live life like a digital nomad.

I then spent several days up in Yosemite to see if bears poop in the woods. Then I went to New York City for two weeks to watch the US Open and see some friends! Once I paid off my mortgage, I began to completely slack off!

There was little motivation to try and maximize income. Why bother when the mortgage was already paid off? Back then, I was still $50,000 away from my $200,000 a year passive income target too. It didn't matter. I wanted to relax.

The last mortgage payment for my condo felt great
My last mortgage payment on 5/12/2015. Balance was $464,000 in June 2003

Sure, not having to consult anymore meant less stress and a healthier lifestyle. But it's not like I was stressed or unhappy working those hours in the first place.

The biggest downside to paying off your mortgage is really the loss of motivation to try new things. Only when your back is against the wall will you do everything possible to change. Having a mortgage is like an implicit back stop to not slack off.

The Hammer Came Down

If I had focused a little more on building wealth since 2015 (age 37), I probably would have been less stressed raising two kids without a job once the pandemic hit. Since both my wife don't have jobs or subsidized healthcare, we knew our finances would be severely tested.

We just never know when the next black swan might hit. And when you have little ones depending on you, it becomes that much more important to get your finances in order. It is only through sheer luck everything has recovered so quickly.

The violent correction in March 2020 was a big wake up call to not slack off too much. For so long, it's been easy to think we're all investing geniuses due to the bull market.

A Recent Example Of How A Mortgage Affects Motivation

In early 2019, I bought a single family home fixer for cash. I went through a pretty arduous negotiation process that required writing a real estate love letter, a real estate breakup letter, and more.

In the end, I thought I got a great deal – maybe $100,000 – $150,000 below market price. I spent time remodeling the house to make it even better before moving in.

Then, as fate would have it, I found a really nice house a year and a half later right at the start of the pandemic in 2020. My wife thought I was nuts to buy another house so soon.

However, it was in the neighborhood. It was also the perfect house for our larger family. The combination of potentially getting a good deal and providing a nicer living arrangement was too hard to pass up.

We bought our forever home with a huge mortgage. With a new 7/1 ARM mortgage at 2.125% I was motivated to move into the new house immediately. Every day we delayed moving into our new home felt like a waste of money due to the mortgage.

Took My Time Renting Out My Old House

With our old paid off house, I took a couple weeks touching up the house in preparation to rent it out. In the past, I would have touched up the house in a couple days so it could be rented out ASAP.

Then, I passed on tenants who were willing to pay $150 a month more. They just didn't feel right and I wanted to feel great about the tenants. I had no mortgage, so I could afford to wait.

By passing on these willing tenants, I had to wait another 7 days before finding my ideal tenants. When all was said and done, I gave up about $2,500 in rent over the course of a year.

If I had a mortgage on my rental house, I would have tried harder to find new tenants and signed with the first set of tenants. I just didn't care as much for optimizing returns any longer.

More Reasons Not To Pay Off Your Mortgage

Here are some other reasons to not pay off your mortgage. You can say they are more negative reasons to pay off your mortgage early as well.

1) You lose your mortgage interest deduction. 

The mortgage interest is treated like a business expense for rental property and a tax deduction if it's your primary residence. The higher your tax bracket, the more valuable the interest expense.

For those in the 32% Federal tax bracket or higher, you get better value keeping your mortgage. The ideal mortgage amount is now $750,000, if you can afford it.

2) You lose a low borrowing cost.

Interest rates are at all-time lows thanks to the global pandemic. Therefore, it makes more sense to hold onto a low fixed mortgage rate for as long as possible.

In fact, thanks to high inflation, you can now get a negative real mortgage rate. A negative real mortgage rate is like getting paid to borrow money! When you are getting paid to borrow money, inflation-adjusted, you should hold onto your mortgage for as long as possible.

My current mortgage rate is at 2.125%. I won't be focused on paying down my primary mortgage for a while. With the latest inflation figure at 8.6%, I have a negative real mortgage rate of -6.475%. Only when inflation normalizes down to about 3% will I consider paying down extra principal. Inflation is paying off my mortgage for me, was it does for you.

Another thing to keep in mind is whether you have a primary home mortgage rate or a rental property mortgage rate when you've rented out your home.

Rental property mortgage rates are usually ~50 basis points higher than a primary home mortgage rate. The reason why is because banks view rental properties as more risk than a primary residence. Therefore, if you are renting out your home with a primary home mortgage rate, you're more incentivized to keep it because it's lower.

The cash you save by not paying down your mortgage can conceivably be used to invest in other assets that provide a greater return.

3) You tie up capital in an illiquid asset.

Unless you have a very diversified net worth, having a lot of capital tied up in a property can be bad.

Your property could blow over in the next storm, or burn down in a fire. If you are underinsured, you will pay dearly as insurance companies make it difficult for you to receive full benefits from a claim.

Most Americans have a majority of their net worth (~80%) tied up in the home. When the housing market collapsed in 2007 – 2010, so did the net worths of millions. The greater the chance of a recession, the more cash you should have on hand to survive.

Hence, I wouldn't have more than 50% of your net worth in real estate and 30% of your net worth in your primary residence.

4) You decrease your financial returns.

Another downside to paying off your mortgage is lower returns. If you put 20% down, a 4% appreciation on the property means a 20% cash-on-cash return thanks to leverage. For example: $100,000 down payment on a $500,000 house that appreciates by $20,000 means your equity increased by 20% to $120,000.

If you decide to pay off the other $400,000 in mortgage early, the return falls all the way down to 4%. You also don't have $400,000 to invest elsewhere. Of course, there's always a chance you could have invested the $400,000 in something that loses value.

5) You might start being less efficient with your time.

Instead of consulting for lots more money, I decided to spend my time discovering what it was like being an Uber driver back in 2015. After all expenses, I was only making $22-$25 an hour driving. But if I had found another consulting contract, I could have easily made 10X that amount.

If I had focused on growing Financial Samurai, perhaps I could have made much more. When it comes to making money, less debt can make you less financially disciplined.

But I decided to try out Uber driving because I was curious and fascinated with people's stories. Some of these stories ended up on here. Further, making a lower income or close to minimum wage helped me appreciate the opportunities I have today.

If you find yourself spoiled, clueless, or taking life for granted, please work a minimum wage service job as an adult. Your dejection will clear right up!

6) A chance your credit score might take a hit.

Some of the variables that go into determining your credit score include the amount of debt you take out and paying your debt on time. Therefore, paying off your mortgage may reduce the strength in these variables.

If your credit score takes a hit, you may not be able to get the best interest rate for your next mortgage, car loan, HELOC, or personal loan. If your credit score is borderline excellent (~760) and you plan on taking out more debt in the future, perhaps paying off your mortgage is not the best move.

Conversely, if your credit score is well over 800, then paying off your mortgage won't make a difference to your credit score. A lower credit score is one of the least negative reasons for paying off a mortgage early.

7) You lose your negative real mortgage rate.

With inflation elevated since the pandemic began, your mortgage is likely yielding a negative real interest rate. For example, in 2022, inflation is around 8.6%. If you have a mortgage under 8.6%, which everybody does, then your mortgage interest rate is negative. This means you are getting paid to borrow money in real terms. Or it means than inflation is whittling down the cost of your debt.

When real interest rates are negative you want to hold onto your debt or accumulate more good debt. Inflation is inflating the cost of your debt for you. Therefore, you should be in no rush to pay down your mortgage in a negative real estate rate environment.

If you look at the mortgages by interest rate, 90%+ of mortgage holders have interest rates less than 5%. Therefore, pretty much everyone has a negative real interest rate mortgage today.

This also means that more homeowners will be holding onto their homes for longer. Because if they sell, they will lose their low mortgage rate and have to pay up for a more expensive house with a higher mortgage rate.

A Mortgage Can Motivate Both Ways

In a curious way, a mortgage not only motivates you to build more wealth, a mortgage also motivates you to pay it down. If your property ends up appreciating in the process, then all the better!

Despite losing motivation to hustle after paying off your mortgage, paying off your mortgage early is still a worthwhile goal.

It feels great to have less debt or no debt. Every extra mortgage principal payment is progress towards more financial independence.

With a new mortgage, I'm more motivated to continue building wealth. But the reality is, I don't need any more motivation. I have two young children that provide the greatest motivation of all.

Each child is like a mortgage itself, reminding me to not mess things up. In fact, my son the other day said the sweetest thing, “Daddy, thank you for working so hard to buy this house!” Once I heard those words, my motivation rocketed to the moon!

Mortgage And Retirement

Ideally, it's good to have zero mortgage debt by the time you retire or no longer have a desire to make more money. The challenge is to time the outcome perfectly.

After playing around with the retirement planning calculator, I feel paying off all mortgage debt by 2031 is the ideal scenario. 10 years is a long enough time to leverage cheap debt to boost wealth. My motivation to hustle will likely fade in 10 years.

Figure out when you plan to retire and divide your debt by the number of years left you plan to work. The amount will be how much debt you have to pay down each year to reach your goal.

Let paying off your mortgage be a great motivator to boost wealth and stay focused. By the time you truly retire, I'm sure you'll be thrilled at no longer having a mortgage.

Invest In Real Estate More Surgically

The combination of rising rents and rising capital values is a very powerful wealth-builder. I encourage readers to invest in real estate to build more wealth for the long term.

In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms. It was a great way to diversify away from expensive coastal city real estate and earn more passive rental income.

Best Private Real Estate Investing Platforms

Fundrise: A way for all investors to diversify into real estate through private funds with just $10. Fundrise has been around since 2012 and manages over $3.3 billion for 400,000+ investors. 

The real estate platform invests primarily in residential and industrial properties in the Sunbelt, where valuations are cheaper and yields are higher. The spreading out of America is a long-term demographic trend. For most people, investing in a diversified fund is the way to go. 


CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations and higher rental yields. These cities also have higher growth potential due to job growth and demographic trends. 

If you are a real estate enthusiast with more time, you can build your own diversified real estate portfolio with CrowdStreet. However, before investing in each deal, make sure to do extensive due diligence on each sponsor. Understanding each sponsor's track record and experience is vital.

For more nuanced personal finance content, join 65,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009. I help people get rich and live the lifestyles they want. 

The The Biggest Downside To Paying Off Your Mortgage Early is a FS original post.

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208 thoughts on “The Biggest Downside To Paying Off Your Mortgage Early”

  1. Having paid off my primary residence mortgage a few years ago the biggest upside is the security (or feeling of security) a paid off home provides. I will admit that when I first paid off our home and handed over large chunks of money I felt cash poor for the next year. The nest egg quickly rebounded and with all the uncertainty in the world I am very happy with the pay-off decision. Alas, I still pay property tax and insurance but no more interest to the banks. We can now survive on very little income if we had to.

  2. SkepticalInvestor

    Hi Sam,

    Thank you for making me more aware about decrease in motivation/hunger as you become more independent.

    However, what is the point to make money or become financial independent since you cannot enjoy it and feel always guilty that you relax a bit instead making more and more money (for the old age)?

    You encourage people to take more credits (and be in the rat race) just to be motivated (financially)? You can become auto-motivated in various ways, but the point is to relax at certain point in time (and not at your 70s0 not to be in permanent hustle.

    This is like you jump yourself in the middle of the ocean just hopping to learn to swim due to increased desperation? If you do not jump, you never learn to swim? You can die in the process man (mortgage + more risks + stress and health destroyed + so on).

    I read a book Millionaire Mindset of Stanley, specifies that millionaires studied have no debt. How do they motivate to become millionaire and continue in this direction? May be GREED could be an answer. Self controlled GREED could replace the Mortgage :)

    However, I noticed that you not only recommend mortgage, but refinance it. American capitalism is very pragmatic.

    Good luck!

    1. Good luck to you too! If you have found the perfect balance between motivation, enough, being happy with what you have, I’d love to near how you did it.

      I really enjoy chronicling how I feel to help others who may be feeling the same way or who may not be aware about what might happen until after the fact.

      Today, I’m really motivated to build wealth to take care of my kids, in addition to continue not having a job to live free.

      1. So, right now i have 3 mortgages on 3 different properties, one being the main residence. plus 4 other properties, fully paid. I dont pay a single dime on the mortgages since they all generate rent and it all pays for itself. Until last year i was quite confortable with all this, but this year i have began to feel quite exposed, since in my latin american country there is quite a lot of economical and political turnmoil at the moment.
        One of the paid properties have reached or is very near maximum market and rent value. Would you say is time to sell and payoff one of the other mortgages and leave a nice cash cushion to invest again when the time comes?
        By the way, mortgages here are 10%, not 3% like in the US.

        thanks for all the good advice.

      2. SkepticalInvestor

        I am not motivated anymore to make money, to be honest with you, but this is the point actually, to forget about money and go and admire nature and catch butterflies if this is what you want to do (and Rousseau did, actually). I feel guilt also about this and, is not ok to feel guilty.

        When you do what you do in life actually, all your life you should be the sclave of making money and money?

        Everything is in our head/mind, depend on what you choose in life, your freedom or to live in the most expensive city? One may choose to move to a half expensive place and be free from money, some other does not value freedom so much and prefer to live and the heart of an expensive city with the price of his financial liberty..

  3. hahaha I have no mortage, no home, no nothing and I feel like that, totally unmotivated. It may be true than. I don’t think a mortgage would change that at all tho

  4. Sam,
    Your comments to the ‘young guns” are spot on about not wasting their window of opportunity.

    I can’t say I always agree with some of your commentary but you absolutely hit that one on the nose. I have to remind myself that I’m a bit past your point of view and I remember very clearly the world you see through your eyes.

    Kudos my man. I turned 54 on Valentine’s day and I still see opportunity but have less desire to accumulate wealth but that’s another story. I wish you a blessed life and the ability to “know when” to change it up.

    I found that the hardest and sometimes most frustrating part. I’m at peace with my decisions at this point in my life and I’m so glad I don’t feel the need to have to perform as I once did.

  5. Geoff Williams

    For me, it is not savvy to pay off mortgages at 2-2.5%, your overall cost is going to be 1.5% or so depending on your tax bracket; invest the extra money, net 4-6% and let your heirs sell your house and take the equity. Borrowing 1.5% fixed rate money is also a great long-term inflation edge. Paying off early is emotional; borrowing cheaply well below investment returns is more rational.

  6. Success Triangles

    Sam, I have to respectfully disagree with you on this one. We paid off our mortgage six years ago (at age 42) and it hasn’t decreased the fire in my belly in regards to finances. In fact, it has had the opposite effect. We have so much more $$ now to invest without a mortgage payment, not to mention the piece of mind that comes along with being debt free. I would happily do it all over again!

    1. I’m 40 and my wife and I have just decided to pay off our £90k mortgage debt by the time I’m 42. It’s going to be a frugal few years but I’m actually excited about it. I love the idea of being financially free and for me not having the mortgage debt will increase my risk taking. E.g retrain, take a job elsewhere knowing you will be fine even if it doesn’t work out etc. Bring it on!

  7. So much truth in this. I felt burned out by my late 30’s. Somehow I have to rekindle the earlier energy and passion. Now I’m 44 and we just had a kid a couple years ago so I have to find a way to keep going. We don’t have nearly enough capital to quit working, but maybe enough capital to serve as a bridge to do more meaningful work and pull back on hours? I will take heat from my wife and her folks if I pull back too much.

    I was furloughed recently but found a very attractive job offer with a startup that will pay me more money than I’ve ever made as a software engineer. I know it’s going to be a grind and I’m steeling myself for it.

    What do you think of building business(es) on the side with the plan of eventually “retiring” into freelancing and/or small business? I guess that’s kind of what you did with Financial Samurai.

    Meanwhile I’m plowing money into real estate and perhaps stocks (although this bubble worries me – will probably look for value managers) hoping the passive income will eventually snowball and cover expenses.

  8. Daniel Cohen

    Hi Sam,

    Thanks for your article. However, I think the argument is too specific.

    Instead of focusing on needing a mortgage to inspire trying to make more money, I think it would be wiser to say we need a goal in our life instead. Whether that goal is to pay off our mortgage, provide for a wife and child, start a new business, fund retirement, or donate to charities you believe in is immaterial. It just needs to be a goal that requires capital you do not have today.

    One point your article does not discuss that is also very important when you are out of debt is your ability to take bigger risks in life. Would you put $20000 into Bitcoin when it went down to $4000 in March 2020 if you had mortgages? The answer would be No!! However, it is completely likely you would do it if you had no debt since you would be less likely to require that money. In this case you would have made a killing financially if you did

  9. This is timely article. I think the main reason we paid off our mortgage at the time was for the freedom. Also, there was an excitement at the time of paying more each month on the mortgage and having another financial goal.
    We are now looking at building a small home that we can better age in place, on a separate piece of wooded land that we have owned for years. However, with interest rates so low now, I will not be putting all the money from the sale of my house into the new one. Instead, I will probably put 20 to 30% down and then save/invest the rest.

    1. That great feeling of progress of paying down extra principal each time felt wonderful. Progress equals happiness, in everything we do!

      Then once the mortgage is done, we feel proud of our accomplishments. And because of hedonic adaptation, we then look for a new challenge. That is the curiosity of life!

      We’ve only got about a 20-year period window where we are full of enthusiasm and energy to earn and grow our wealth. If we don’t make the most of it, we might regret it later on.

  10. If you are less than 10 years into a 30 year fixed rate mortgage should you think of the interest savings as more than the annual rate of the loan because of the way mortgage interest amortizes? Since you are earlier in the loan the percentage of interest vs principal pay down in less favorable which in theory make that years interest rate higher. (Or is this a ridiculous way to think???)

  11. Dividend Power

    Interesting. We just paid off our HELOC or second mortgage and felt good about it. Of course, we don’t get the mortgage deduction anymore. We just use the extra cash to pay off the first mortgage now.

  12. Hi,

    I happily paid off my mortgage after 9 years (at 40 years old) and was no longer a wage slave. Within 10 years after that, I decided to semi retire and was physically and mentally in better shape than when I was working hi stress jobs full time. If that’s what you mean by being unmotivated because all my debts are paid, I recommend it highly. Stress does nothing good for people’s temperament and health. In 2021 I can’t imagine why people spend time on businesses that yield very little and think that’s the best way to go.

    1. Thank you for your comment I agree 100% !!! Life is not only about earning more and more with high stress. Quality of life, peace of mind grant us health !!! Congratulations great move !

      1. We bought our house outright in 2016, it felt great, no issue on motivation but then 4 years later we wanted significant ($300k cash) pre-arrival capital for an international work assignment (avoids double taxation bringing foreign capital abroad blah blah look it up if you care). Our options were to sell equities taxed as income or take a loan on our primary so we got $400k at 2.99% 30 year fixed. We’re renting our property for $6,700/mo in Walnut Creek so it’s essentially an advance on the rental income. In retrospect I should’ve taken a larger loan since the rates are great but wanted to keep it easy at $1,650 repayment/mo. This worked great for us, very happy!

        Sam, why not carry a mortgage on your primary in retirement provided you COULD pay it off at any time. There’s no stress as you have the capital to repay and you got a lump sum tax free?

        1. Howdy EB, sure, that’s what I’ve been doing for a while – holding a mortgage, but also have enough to pay it off.

          But I bought new home in 2020, to take advantage of the COVID discount once lockdowns happened. Now I’ve got more mortgage debt, but it’s cheap at 2.125%.

          I just updated this post on the right asset to the liability ratio or a couple retirement. Check it out. I think 5 to 1 is a good steady state ratio.

  13. For a year I was tenaciously stalked by a serial killer. I constantly was on the move, looking over my shoulder, never at peace. I barely enjoyed eating or sleeping, and spent waking hours avoiding normal life while always feeling “hunted.”
    One day the killer was caught by police , lifting the burden from my shoulders and allowing me to finally relax and concentrate on the simple daily affairs of a normal life.
    A year later I’m out of shape, I’ve gained 30 lbs., and life is too predictable.
    I needed that serial killer to be motivated and on top of my game.

    That’s the analogy I got from the article.

    But if the purpose was to motivate people like me to sign up up for your blog…..I guess you win.

    1. Great analogy! Now imagine the serial killer had a brother who knows where you live and plans to hunt you down. Now you’ve got motivation again to get back in shape and make more money to build your defenses.

      America has it relatively easy. We know this from traveling and living abroad. It’s why most of us are overweight and losing out to hungrier people around the world.

      Gotta keep that motivation alive!

  14. Great article. I started paying off some of my mortgage on my primary home when we first acquired the home 3 years ago. I soon realized paying off a mortgage with 3% interest wasn’t the best investment of my money and started using money to buy investment properties instead. The point about motivation is a great one too. I never thought about it from that perspective.

    1. Good article on a subject I have always considered but NEVER WORRIED ABOUT. I’ll turn 60 this year and have carried debt since college through my professional career and real estate portfolio acquisition. And I never had a home mortgage until I refinanced all my commercial loans into one in 2013. At sub-4% I’ll never pay it off when I can have the interest deduction on the front end against unrealized capital gains and dividends from other investments on the back end.

    2. Less stress and good time spent with family is a great motivator. I am so sorry for people who need high pressure to get motivated. Therapy can help to find motivation in a healthy and balanced way.

  15. Very interesting point. On my blog, I’ve written about the financial benefits of holding onto your debt, but I haven’t considered it from this angle.

    It makes sense. I’ve definitely noticed that the closer I get to financial freedom, the less motivation I have to go above and beyond at my job. It’s almost as if we need that monkey on our backs to keep us moving forward.

    1. I have the opposite view. I just paid off my house after 8 years and 4 months and now I am extremely motivated to put as much as possible into other investments such as the stock market, my own business and rental property. I am 35 and self employed so I don’t have a pension or company 401k to rely on. Hopefully now I can really focus on putting a lot into diverse investments. I have been married for two and a half years and my wife is Brazilian and has her house still in Brazil which we are renting out. That mortgage is being paid by the renters thankfully.

      1. If you would have put all your money into investments for the last 8 years and 4 months you would have done astronomically better. In fact, if you were so focused on paying off your house, you could have sold your investments after the same 8 years and 4 months and still had a ton left over in your investments.

        I agree with the author, it makes little sense to pay off a low interest mortgage (3%) when you can get a much larger return on your money in investments. Last year alone I averaged over 35% across my investments. Think about all the money you’re leaving on the table if you pay off your low interest home first. It’s all about how fast you can grow your net worth.

  16. Hello Sam,

    Great thoughts on the dilemma between paying off your mortgage early or not. I do see how the monetary pressure of a mortgage will motivate you to work harder and the opposite when it no longer exists. I will personally let mine run its 3 decade course for that reason as well as optimizing my return on investment in other ways.

    I agree with you that there are a multitude of ways to get a better return on your money because of the very low mortgage rates. 2.125% on a mortgage by the way, that’s awesome man, congrats! Since the monthly mortgage payment is lower, I use my discretionary income to invest. A 2.75% annual return or higher is about as easy as it will be for a while :).

    I say that now, but you never know when the next event like the dot com bubble or the financial crisis of 2007-2008 will occur again. Even in those events it is better to focus on time in the market versus timing the market even though it did take the S&P 500 nearly 7 years to recover from the near peak amount in September 1, 2000 right before the bubble popped.

  17. Refinance Mortgage?

    After reading FS for a long time I have decided to take advantage of the low interest rates and do some investments with the funds. So, after a recent move (1.5 years ago) I decided to purchase an old house tear it down and build a new one. I will finish the house in a few weeks. The house cost me $650,000 (which is a conservative estimate of the value based in the area). I cash-flowed the building of the house and are looking to get a $400,000 mortgage on it.

    Based on the reviews here I have contacted Lendingtree, Quickenloans, AmeriSave, Credible and Bank of America. None of them have so far been able to give me a an actual mortgage estimate. It’s not a new house purchase (I own the property) and since there is no mortgage to refinance it doesn’t fit with their online forms I guess. For Credible I was not even able to fill in my information on their website (gave errors trying to refinance without having a current mortgage payment). I have talked to about 10 different loan-officers in the companies above (they are quick to call after you have provided the information online) but none of them have been able to give me an actual quote for the mortgage .

    It is quite interesting when the whole mortgage industry going online and there are no human decision making anymore (just an computer algorithm making the decisions). So, I assume with a +790 credit score, no debt and asking for 60% of the house value in a mortgage it appears that is not acceptable for the algorithm. The only solution I have found so far is to stick with the local credit union but their interest rate (~3.5%) is not attractive. However, they have a loan officer that is empowered to make a good deal when they see one. This might be an interesting topic to do more research in for FS. How to get a mortgage when you are trying to fit a round object in a square hole.

    1. Hi Ron,

      Sorry to hear it’s been so difficult for you. After you’ve checked on over 5 platforms with 10 different lenders, unfortunately, the issue is likely you, not the lenders. There has to be something in your credit report, employment situation or background you haven’t shared yet or you just don’t know. I recommend you ask them for more detailed feedback.

      That said, I’m glad you can get something at your local credit union. Although 3.5% is about 1% higher than what you may get elsewhere, it’s still pretty good.

      And I do empathize with you, as getting the best mortgage refinance rate can be a BATTLE.

      Here is one of my experiences: The Hardest Mortgage Refinance Ever: Key Takeaways

      At the end of the day, I recognized I had to try harder to get a better rate.


  18. Sam – I can’t resolve this article versus your one 5 months ago advocating a 0.5% withdraw rate. If you’re that dour on the long term prospects due to the low 10 year bond rate, why is debt at 2-3% good to have?

    And help me with the math – who is getting a mortgage interest deduction anymore? The 2017 tax bill “double” the standard deduction while removing the exemption, and moved all SALT items into a single 10k bucket (single or joint) that all Californians exhaust in seconds.

    750k x 3.33% (a lousy rate) = 25,000 in interest. The 2021 standard deduction is 25,100. And with virtually all other deductions neutered, that means nearly all married couples are no longer itemizing. Even a single filer with this max mortgage and a nice 2.5% rate is going to save just $2000 on taxes, against a mortgage cost of nearly 19k, so an 11% discount.

    It’s not clear to me if the 750k limit goes back up to 1M in 2026, or has forever been reduced. But even then, my 2.625% rate means only 26,500 and the standard deduction will be at that mark in 5 years. Barring a restoration of full SALT deductions, which only sells in CA and NY, I don’t see the MID returning anytime soon. Mortgage rates would have to jump back into the 6-8% range, which you and I both agree seems extremely unlikely in the next decade.

    Now given a choice of paying 4.25% again and getting a few thousand back, or paying 2.625 and getting nothing back, it’s a no brainer.

  19. “When life is easy, we tend to get soft. Not only do we get out of shape, we neglect our relationships, and ignore our finances.

    When you’ve got everything covered, only the craziest of people bother to take risks. It’s irrational to work hard if you have no financial burden. When nobody is depending on you, there’s no pressure to provide.”

    I couldn’t agree more with this snippet. I can’t relate about mortgage payment, but I can relate with this one. Last year, I lacked motivation because I was “living for myself.” If I wanted, I can slack off for three months because I had savings. I didn’t take any chances of investing in properties or starting a business.

  20. Love the perspectives and I agree. I’ve been working hard to pay off my mortgage and had the same thoughts leading up to it. I’ve officially paid off my house because of twofold: 1) the house I’m in now will become a rental down the road and this income will be used to reduce the payment on my other property and 2) I actually want to reduce expenses to focus on my online business and other higher risen opportunities. I figure if I can have a small base of stable income. Then, other income I can use to invest for upside.

    1. The pandemic has shown an online business is definitely the way to go. Good luck! Starting FS in 2009 has been my best “career move” so far. I would be really, really miserable right now if I was still working in finance!

  21. Not paying off my primary mortgage, only owe a small amount. I am paying off my ski condo that I have owned for 3 years with a 30 year ARM. I’m not a huge income earner, but I’m down to 20 years left after paying extra principal. Hope to have it paid off in less than 15 years. Thanks for all the wisdom!

  22. David @ Filled With Money

    I haven’t thought about the behavioral motivations that come with taking on an extra mortgage. Honestly, I’ve been feeling like slacking off because I am very close to reaching my financial independence number of $500,000. I’ve been losing motivation and like my job because it is a lifestyle job without a lot of stress on my shoulders.

    Maybe I should look into buying a house and getting a mortgage, hopefully that will fire me up!

  23. Have paid off my mortgage and it was sub 3 percent. Multiple reasons:

    1) work in finance in nyc and volatile
    2) saw prepays as part of my fixed income return
    3) using cash flow starting next year to self fund college expenses instead of using 529 – instead will use them as LT tax deferred accounts and hopefully pass to eventual grandkids
    4) costs to refi a mortgage in nyc are to high with recording taxes and otherwise – hate transaction costs in any form
    5) can always get liquidity from a decent private banking line (7yr cheaper than mortgages currently)

    My hunger has not slowed up one bit – I never was motivated by paying off my house but rather hitting a certain financial goal – that has been hit – but goals change.

    I know I can retire (mid 40s) but don’t want too yet – but will consider removing the stress and considering another role in finance at another firm when time is right just to stay busy.

    However, I do understand the consideration of having a low mortgage and investing it – otherwise known as a carry trade. It works until it doesn’t, and be honest with your own investment risks and what happens in the tail risk that super safe investment doesn’t turn out that way?

    1. Good reasons! And so long as you feel good about your decision, that’s what matters the most.

      It’s hard for me to put aggressive new money to work in the stock market at currently valuations. So now, I’m evaluable between commercial real estate deals and paying off mortgage debt. Investing in stocks is a tertiary consideration, unless there’s a 5-10% sell-off.

      1. I always have RE I evaluate, but always via 3rd party managers. Have used B-REIT and Invitation Homes as the basis of my core RE. I don’t have the time to manage my own properties so find it easier to outsource to the best.

        Keep up the good work, I always read your stuff and we have similar perspectives.

  24. Interesting way to look at this, Sam. I’ve been on both sides of the spectrum at different times in my life.

    This year we ended up selling off a rental property with a lot of equity and using the proceeds to pay off a couple of other rentals. There was enough to pay off our primary home mortgage, but we decided to just refi it instead at these ridiculously low rates.

    We’re using the extra cash flow to accelerate the paydown of the primary mortgage now… at least until there’s something better to do with the cash.

    Happy New Year to you and the family!

  25. Hi Sam. I have enjoyed your blog over the years. Is a paid off mortgage the reason for a drop in motivation or is it a lack of purpose or goal in life? I think the latter of which a mortgage could contribute to some purpose in one’s life.

    1. It’s up to everyone to decide that question for themselves.

      In 2015, after hustling hard with three consulting gigs for three months, I was beat. After paying off my mortgage, I decided to really unwind.

      Today, having a mortgage helps me keep an eye on my finances. I also have a goal of generating an incremental $10,000 a month in 2021 to cover my mortgage and healthcare expenses.

      I know I will achieve my online income goal thanks to having a mortgage payment. It feels great to provide for my children. Otherwise, I’m really not that motivated to work on biz dev deals to earn money online b/c that takes work.

      How about you? What is your motivation and purpose in life?

      1. Your best advice for me

        For many, including me, 2020 was fantastic. I know it wasn’t all brains. I had no idea what Tesla would do. I bought it because of Elon and clean air. Not because I knew what the stock would do.
        This is the point. I have wanted a particular watch for 10 years. I sold some shares of stock, not Tesla, and bought it.
        You advised taking some “funny money” and converting it to something tangible. That is what I did. I never would have done that w/o your suggestion. Now, I have this great watch. There is one other thing I want. My motivation is to buy it when I feel I can afford it.

  26. You’ve made some good points Sam, the “all debt is evil” folks will scream and holler and the “only those who retire early are worth anything” folks will jump up and down but there ARE situations where keeping a mortgage isn’t the dumbest thing you can do, you mentioned several examples.

    It’s one thing to say “all debt is bad” and another thing to be HONEST about human psychology and take advantage of it (something marketers and others try to do to all of us all day, every day).

    Your example of keeping a mortgage to keep you hungry is a good example of “hacking” how humans work, folks might not like it, they might not agree with it but, you can think it’s dumb AND acknowledge that it “works”.

    I LOVED the idea of being debt free but, on the path to that, like you, realized I would wake up the day after I was 100% debt free the SAME person, with not much of a difference in the world. (I’m a lucky man as I do have 57K in mil pension so I can rest easy since we have simple tastes, low spending, lots of reserves). Once I came to terms with the fact that being debt free might not be the best financial choice, controlled my emotions around the idea, reviewed all our numbers a couple (15-18) times, we decided to refi our home and take cash out to put into the market.

    It’s ok to LOVE the idea of something (being debt free) and if you don’t have solid passive income or a pension, it DOES reduce risks, but loving something and recognizing that it might not be the best, in my mind, that is next level thinking. Then hacking your life so you take advantage of that (you want to be debt free but realize you could do better by investing money you take out of home equity) and “working out” the cognitive dissonance between the concepts (if there is any), that is NEXT level thinking.

    Keep up the good work Sam

    1. Thanks. Are there really people who think so one dimensionally? There’s an ebb & flow to finance.

      ““all debt is evil” folks will scream and holler and the “only those who retire early are worth anything””

      Taking on debt to live it up feels good, within reason. Paying off debt also feels great. In such a low interest rate environment, it is logical that the desire to pay down debt slows and the desire to invest grows.

      1. “Are there really people who think so one dimensionally? There’s an ebb & flow to finance.”

        Sadly, I was born in an area populated with such people, short sighted, mostly in debt/lower income, and unwilling to open their aperture. Once an idea like “all debt is evil” takes hold, they run hard with it. The same is true for “everyone must have a huge truck” or “it’s ok to make payments if you can afford it” (I know, opposite ideals but trying to demonstrate that they don’t think past the first “thought”).

        I was mulling this over a little more and rather than a single metric guiding our debt decisions, I think a more nuanced model is appropriate. Something like:

        Balancing debt load with:
        – Positive net worth
        – Income potential/history
        – Phase of work life and phase of occupation
        – Age, family situation
        – Level of passive income
        – Purpose of debt
        – Current economic situation (big picture)
        – Current emergency fund size (can you service the debt easily)

        At some point, I guess the networth grows to the point that debt is no longer desire-able? I don’t know what the level is but suspect is many millions, in the meantime, we can make more informed decisions about our finances by reviewing the whole picture, not just a “yes/no” decision tree…

        1. Makes sense on those bullet points. I think we all review many of them implicitly over time.

          As for trucks, so long as the owners are mostly using them for work, like my general contractor or gardeners/landscapers, then trucks make a lot of sense.

          But I do have a 30-year-old neighbor who still lives at home with his mama. And he bought a massive double cabin truck. I asked him if he is now working in construction, and he said no. He bought it to take his surfboards.

          1. “But I do have a 30-year-old neighbor who still lives at home with his mama. And he bought a massive double cabin truck. I asked him if he is now working in construction, and he said no. He bought it to take his surfboards.”

            Such a strange trade-off to value a truck to haul surfboards more than the freedom of living on your own, even if it’s a tent somewhere… some lines of thinking, I just can’t come to terms with.

              1. I’m living it!

                Have a 20 year old who is at home due to school shut-downs, works HARD but still doesn’t have to live like a broke college student because mom and dad are paying for college (with 25% payback expected) and covering the bills, which means discretionary income = money to blow! It’s a tough spot and we are about to institute rent payments even though they are “in school”….

                This is a hard situation, not clear cut like “if you go to school, you can stay here for free until you graduate”. Figuring that out when “going to school” means class from home… a whole new dynamic.

                How are you going to manage when the kids are older, considering you’ll likely be much wealthier at that time?

                1. Your 20-year-old still has a pass! I would think if he’s still living at home after 25 or 26, then you might have to start getting worried.

                  As for me, I’m putting my kids to work early, for their own sake. My hope is that they will understand business and wok ethic by the time they turn 18. Let’s see!

  27. I paid off my mortgage many years back on my rental as well as primary home. Now when I see APRs around 2.5% on 30 yr loans, I kick myself why I paid off my mortgage.
    I am thinking of taking a loan on primary home and invest in one of Vanguard Funds that return 5+%.
    I like to hear what you think about this.
    I appreciate your recommendations.

  28. I totally agree with you, Sam. We paid off our mortgage back in 2009. Without that monthly mortgage obligation, I felt that we lost that “WHY” to working. We just lost our drive to move up in our careers. A few months ago, we decided to have a second home near a ski resort. We will close on that second home this March and I feel having a mortgage once again will ignite that desire to keep working. We are in a comfortable situation and could technically retire if we wanted to (a paid-off home worth $600K, $2M of equity in 9 rental properties, and $3.6M in stock/mutual fund investments). Our combined income is $700K and I’m not quite ready to walk away from that (my husband initially wanted to retire in 2023). So, I’m hoping that having that new mortgage will motivate us to work until 2026 (3 years longer than original plan and the year our 2nd child will finish college). I will be 56 and my husband will be 61 at that point.

    1. Very cool. What is it that you guys do? If you enjoy your work, might as well keep making that $700K!

      Working until kids graduate from college I’d always a nice and satisfying goal.

      1. Hi Sam. Work is satisfying enough for me. I personally like the feeling of having professional achievements, plus the pay isn’t bad at all. I get 8 weeks of vacation and make $200K as a corporate financial controller. Job isn’t stressful at all. My husband works in a Fortune 500 company as a VP of Sales making about $500K. His job is a pretty stressful and that’s why he wants to quit in 2 years when our older son finishes college. I’ve been encouraging him to stick it out ad additional 3 years just until the 2nd one finishes college. I’m hoping having that mortgage for our 2nd home will burn that fire again to hustle.

  29. Very interesting article and got me looking back the last decade. My husband and I paid down our primary home mortgage a couple of years before the financial crisis. We both got laid off during the crisis and counted ourselves so very fortunate not to be carrying a mortgage and stressing the finances which is said to be one of the biggest the instigators of marital discord. I didn’t lose motivation to work but I think I need stay in a lesser paying position longer (I quickly found another position) because I didn’t have a mortgage to push me toward maximizing my earnings potential. So I might have looked for a more lucrative position sooner. Maybe, or maybe not.

    1. Both you and your husband getting laid off during the recession definitely is a scary moment. Glad you guys got through it.

      My firm went through seven rounds of layoffs over two or three years. It was pretty nerve-racking. And, I had taken out a massive mortgage in 2005.

      I was the best employee I could be during the crisis!

  30. Hi Sam,

    Timely post for me. I currently am about at the halfway point of my 15yr mortgage but am in the process of trying to refi to 30yr because I want the extra cashflow. Am I crazy??

    Thought process is I would like to move and rent my primary out. I have enough saved for a 20% down payment without selling. House is worth atleast 600k and have about 200k left on mortgage and my wife and I have no other debt. Both in mid our mid 30s with 3 kids and we need an upgrade.

    Hope I’m making the right move as it goes against the grain of my traditionally conservative approach.

    1. There is a clause where you’re supposedly not supposed to rent out your primary residence within 12 months after refinancing. But the clause is hard to enforce and I’ve never heard of a bank in forcing it before. Just giving you a heads up. It’s smart to refinance your primary home mortgage because it will have a lower rate than a rental property mortgage refinance.

  31. Poignant article, Sam. After trading up the residence this Fall, I find myself with a much larger total mortgage liability. Don’t get me wrong, we bought our dream home and love it. But I went from smooth sailing and never giving a second thought to my monthly mortgage to planning and debt pay down calculation overdrive!
    I have four properties (3 SFH rentals and my primary). In total, my mortgage exposure is now 627k. 75% of the debt is 30 year 2.5%. 25% is at 3.25% 30 year fixed. I feel I’m well positioned with capital and diversified income streams and savings. But… assuming this additional debt has definitely lit a fire under me to start building my online presence and marketing for my day job.

    1. Sounds good! I hope you make more money thanks to your mortgage.

      It’s really a great combination to make more money, have a cheap mortgage, and build equity through debt pay down and natural appreciation. It’s really hard to lose over a ten-year period.

  32. Interesting, I hadn’t thought about the mortgage as it relates to the motivation. I could see that being true for me. At this point in my life, my oldest kid is headed to college next school year. So I have high motivation and focus right now. Nothing focuses the mind like having a family depending on you!

    But I have to say, just this week I finally closed on re-financing my mortgage for my primary home plus two rentals. I have cash sitting here whereby I could pay off the primary home mortgage. But why? I actually extended it out and locked in a 15year fixed at 2.5%. Maybe could’ve even done better than 2.5% but I locked that rate in months ago.

    Even though I can payoff my mortgage(s) I’m opting to carry the notes at low rates while actively investing cash elsewhere. And it might provide a nice inflation hedge in addition.

    1. Yes, it is tough to actively pay down a 2.5% mortgage. This is partially the reason why risk assets were doing so well. The opportunity cost is so low.

      Working to make money for the next four years until your kid graduates from college is a good goal.

  33. Robert Gingher

    Hey Sam,

    First time reader here. I disagree with your assertion that one should pay off their mortgage before they retire. All the reasons you state for having a mortgage are good reasons to maintain one while in retirement as well. That will keep one focused on maintaining their investments to ensure that they generate sufficient cash flow to keep their retirement lifestyle.

    Best regards,

    Rob G

    1. Sounds good to me. You’ve got to do what’s best for you.

      Once I retired from a day job, I was first motivated not to see a decline in my net worth in the initial years. But now, 8 years later, i’m not too worried because it’s been such a huge bull market for so long.

      But my own kids to keep me motivated.

  34. I’m currently in this situation. My wife and I built our dream home on a nice plot of land and have been paying down the mortgage like mad. We should have it paid off within the next month or two. With the land and house we had $520k all-in. We’ll have the mortgage paid off in 18 months.
    We were both doing extra jobs to bring in more; just like your article says :-) We do have investment plans with the extra cash flow that it will bring. I do concede we may get soft or not hungry enough. We shall see.

      1. You are so right. My motivation tanked. I wanted to pay off the mortgage. I have had two heart attacks. If I have a third, I know my wife is fine. We have no debt.
        Yes, we work hard with a family, but as we get older we must think of our spouses. That is my motivation.
        I also believe I must share with my wife how are investment accounts work. To leave her with millions in investments and not have her know how to buy or sell a stock is wrong.
        We talk about making money as if it is a singular endeavor. If we are married, we must bring our spouses into the process. With the virus, none of us can promise our spouses we won’t die.
        I’m sure many of your readers have money. Many of us may be sophisticated investors. Our spouses can’t handle that when we are gone.
        I need to explain why I buy Tesla. How much money I have made and how I could lose it all. What to do when the portfolio is down 40 percent. Taxes, etc.
        As you get older and a responsible spouse, you will be motivated with or without a mortgage.

  35. I am seriously considering paying off my home in the spring. I have been paying down the mortgage for the last 3 years. I am 9 years into a 30 year fixed 500k mortgage with 200k left to pay off. I am the sole breadwinner of a family of 4 in a relatively high stress NYC financial services job that pays well but not investment banking / trading well. I live in the suburbs. I recognize the math of keeping the mortgage and investing instead but feel my personal situation and sanity depend on being debt free sooner than later. I am concerned that having a mortgage hanging over my head will limit my freedom to control my time as I get older (currently late 40s) and could force me to take a job I do not want if something happened to my current job. I do not have other passive sources of income. Ultimately a few years from now I would like to pursue more entrepreneurial avenues and have the flexibility to earn less and spend more time with my family and help 2 sets of aging parents. How would you balance the math vs personal situation in the mortgage payoff decision?

    1. What’s your income? Sounds like it’s at least $100,000, which makes having a $200,000 mortgage remaining very affordable.

      If you are already feeling potential concerns about the future, then I would think your desire for liquidity may be more important.

      1. Not feeling concerns about employment stability but more about the amount of time / travel involved in the job and level of stress and how that impacts overall daily life. Current annual comp 350-400k. In terms of assets – 1.5 million in IRA/401k, 50k in taxable brokerage acts, 250k in cash in anticipation of paying off house. No other debt besides the mortgage. Home is worth $750k. Married with two kids in middle school

        1. $400,000 income should be more than sufficient to pay down your mortgage in two or three years.

          I just don’t know if you’ll feel that much more secure. $750,000 home is a large percentage of your net worth.

    2. Christine Minasian

      I would pay it down like crazy JJ. My husband is 55, he owned his own business for 30 years and just sold it. We paid off our mortgage and it feels really good. He wants to focus on our teenage girls and work WAY WAY less….like not at all. So we felt having no mortgage provided us restful sleep at night. There is such a peaceful freedom from not having that hanging over our heads. But to Sam’s point, we had money left over from the sale to invest like crazy in other things. I’m sorry but the whole idea of “well you can get more than 4% in the market” just doesn’t outweigh the ease of mind.

      1. Christine. – I really appreciate your perspective and feel that most people don’t understand how a really stressful job pulls you away from being present with your family.

  36. I’ve been in the same situation as this. Completely debt free after paying off mortgage, the house wasn’t what we’d call perfect but certainly good enough to see us into our old age. Fast forward 3 yrs down the track, decided to demolish and build our dream home, now back into mortgage again. The feeling for those first three years was great, it allowed me to think outside the box of constantly focusing on reducing the mortgage. Once mortgage free and with much better cash flow, I studied and intensely self educated on financial matters and now have a good portfolio of stocks and have a much better understanding on investing. On a side note, I prefer stocks to property as I feel already highly house / property biased with the home. We are now very happy to live in this home forever. I understand there is some loss of hunger going debt free but I developed different hunger for passive investing etc. The mortgage ties your mind down and dulls it, I find. To be creative and start a new business, debt is a burden on the psyche. So I respectfully disagree with you on this one, Sam!

    1. Motivation to grow the nest egg is enough to keep me from getting soft.

      Peace of mind from being mortgage free is a priceless bonus!

  37. The new HELOC law that says you can’t write off interest unless used for substantial improvement to your home is very vague.

    I just refinanced my $50K heloc into my existing mortgage.. then cashed out another $50K. The original $50K heloc I have all the receipts for new roof, new HVAC, new pool ect. The $50K I cashed out last year was originally meant to remodel our kitchen and bath. Then pandemic fear spurred us to save the money for the time being. I can’t find any time frame for when the IRS determines I have to use that cash for a “major home improvement”. Can i wait a week, a month.. 5 years!?

    I’d imagine it’s safest to not deduct the interest on that $50K this year.. but if I remodel the bathroom next year.. can I deduct it then? It’s all so confusing and poorly written. Even tax specialist don’t really know.

  38. Hi Sam. Thanks for elaborating once again how not having enough is a motivator to try new things and to think outside of the box. My parents could not send me to a top school and I found myself working to fit culturally in the workplace. In addition, the plan to own my primary residence and then a mortgage motivates me to find ways to improve myself to get a better job. I feel so much less bad about myself not having enough money for all I wanted.

    I’ve friends whose parents have been able to pay for post secondary schools, living expenses and possibly downpayment told me the world is too hard on them. They refuse to work minimal wage jobs because it’s unnecessary to do so.

    Please write more on your thinking process on “not having enough” in your earlier days and possibly teaching your kids about money.

  39. Motivation comes from many places for different people. For us, we payed off our mortgage 5 years ago, but our annual income has increased 3.0x during the same period. Motivation has not been an issue I can assure you.

    The other thing to always consider when paying off a primary residence is risk. I get the math, do not pay off your mortgage, invest! However, we would never talk about investing in equities without also discussing the risk.

    When the house was paid off, for us our risk tolerance actually increased and have supercharged our retirement and our house is about 36% of our net worth now.

    1. This is a good point. Haven’t thought about paying off mortgage as a loosening up of risk tolerance. I can definitely see this for my wife and I when we are able to pay off the mortgage.

      1. The way I looked at it at the time was we would not be able to really touch most of our retirement investments for another 20 years, so with such a long outlook, we could increase our risk tolerance.

        Also, it was very freeing to know that really no matter what, we would have a place to live. Our net worth had only been climbing about 10% a year before we payed off the house, but since then it has been near 21% a year over the last 5 years.

  40. Hi Sam, happy new year!

    Quick question: How do you find consulting gigs? I now have bandwidth and want to get one? Where do you recommend I look and how to figure out a good rate to charge? Thanks in advance!


    1. Back in 2013 to 2015, all the consulting gigs were inbound because they found me from Financial Samurai. So if you want to do consulting, the first step is to brand yourself online with your own website, in addition to LinkedIn and so forth.

  41. On the one hand, I’m thinking “Dang, this is so true. I need to rethink my whole fin strategy.” On the other, I’m remembering that the whole reason I’m paying this down is so that I can work less, earn less, and therefore keep more of what I earn. Personally, I’d rather pay $3,300 in taxes than $10,000 in interest. I will, however, need a better motivator to stay hungry.

    Fear is easy. Finding something worth running towards is hard.

  42. Money Ronin

    Even very rational and financially savvy people seem to take an emotional approach when it comes to one’s primary residence. I have an apartment mortgage broker friend whose investing mantra is to max refi his apartments all the time with 3 to 5 year ARMs, but he has a very small 30 year mortgage when it comes to his house.

    For me, it’s all about the math. If my primary residence loan is 3% for 30 years, but my apartment loan is 3.5% for 5 years, I’m going to max out my primary residence mortgage. In truth, for anything under 4% on 5 year money, I’m going to borrow all I can and reinvest.

    If I can’t get a > 4% annual return over a 5 year time horizon, I’m doing something wrong.

      1. Money Ronin

        Hi Max, thanks for the reminder. Anyone who didn’t invest through that period really needs to look at the S&P 500 charts to understand what long-term investing means. I started investing before that period of time and continue to this day. Over that 10 year period, the S&P 500 dropped 14.4%.

        In 2000, when the tech bubble started, I was in my second year of B school watching my career prospects disintegrate. Indeed many of my classmates were unemployed for months to 1 year with student loan debt. They either had offers rescinded or were laid off some time after.

        When the housing crisis just started in 2007, my first kid was born. By the time my second kid was on the way in 2009, my net worth had dropped by 50%.

        Yet, I stayed invested through that turmoil and hung onto my house. I’m terrible at timing the market, but I’m good about not panic selling. I’m very patient. With the dot com bust, I actually rode some stocks down to $0–the ultimate “buy and hold” strategy. I’ve made plenty of mistakes, but mostly when my net worth and income were smaller.

        I stuck with it during the tough times every time. I achieved financial independence in my early 40s almost 8 years ago; after that it’s been gravy–a lot of gravy. I still do some “work” but serve no master (thus my “Ronin” handle).

  43. I can totally see what you mean about mortgage debt being a big motivator, and any big debt for that matter. I’m working on paying down extra principal on my mortgage and dealing with an insurance fiasco for some medical debt that makes my blood boil.

    Very impressed you paid off your mortgage when you did!

  44. Canadian Reader

    I totally understand what you’re saying in this post.
    Good for you for taking on a new house! Somebody has to live there and why shouldn’t it be you.

  45. I’ve gotten my note down pretty low with current rates.

    That said, I think a note of 200-300 is just as much as food for a family of 4. The guidelines suggest peak nutrition starts at about 10+usd/day/individual… Let alone going out ever.

    Also, I find you can transfer that hustle into your passions as you have. I know you have passions in managing money, debt, investments and losing part of that would hurt, but it’s like a lightweight version of an empty rooster of you have other places to channel.

    Donate, be hands on, coach, contribute to whatever your kids are into… Hustle for that has been enough for me and I know your stuff has been great to you too. It’s a lot more rewarding too than watching the numbers even out all the time!

    Best in the new year to and yours Sam and fellow readers.

  46. Couldn’t disagree more. Since when is paying down debt a bad thing ? Sounds like you’ve over-thought this one and reached the wrong conclusion. Being debt-free is the ultimate goal isn’t it ? And what bigger burden is there besides a mortgage ? “Having a mortgage keeps you hungry”? you’ve over-intellectualized this one. If paying down a mortgage makes you lazy then I think you’ll rationalize anything at this point. Get a grip, suck it up and pay down debt. Don’t over-think it.

    1. Thinking is free. You’d be surprised at how many people contemplate paying down debt or investing. So much money has been made or is being made from our investments.

      Good thing I thought up an ingenious way to tackle this dilemma: FS-DAIR

      Don’t ever let anybody stop you from thinking in different ways. You may find great opportunity!

    2. Think about it a different way. If you’re really wanting to pay off the house, instead of throwing your extra money towards it every month, instead invest it. When your investments reach what you owe on the house, then sell the investments and pay off the house. You will have paid off your house years earlier than putting your extra money directly towards your house every month.

      Personally, I have enough in my investments to pay off my house in full if I really wanted. The question is why? Last year my mutual funds returned over 35% and I’m up about 15% already this year. I’d gladly exchange 3% interest on my home for 35% investment returns or even 10% returns (S&P historical average). My net worth grew by leaps and bounds because I choose to invest instead of paying off my mortgage early.

      Think about it another way. Inflation is hovering at 2%. Mortgage rates are barely above inflation. Again, besides having a warm fuzzy, there’s little reason to pay off

  47. Hi Sam,

    Thanks for the perspective and congratulations on getting such an amazing mortgage rate! You rocked it!

    A couple months ago, I took out a HELOC at 4.99% for 15 years from the previous house (now a rental) just in case I would need it for some renovations to make the unused basement of my current home into a legitimate rental unit for monthly cash flow. Now I advanced around $40,000 of this HELOC to accomplish this task. The monthly rent is 5+times the monthly due of the HELOC I took out. I wonder, shall I prioritize paying off the HELOC with cash, or using cash to diversify into equity markets (I’m currently over 80% on RE)? Do you think keeping a 4.99% HELOC is ridiculous?

      1. Thanks Sam for the very constructive advice!

        Now I realize that 4.99% is very high. But at that time, I didn’t focused on taking the max amount of HELOC because of the uncertainties of the time. If I could lower the amount to 80% rather than 90% of the appraised value, the rate can be significantly reduced to 2.99%… In the end I didn’t use even half of the HELOC amount… It is a good lesson: good planning and financial knowledge can save so much money!

    1. I would not personally ask a lender to give me a loan of 2.75-4% (recent rates) to invest money. Just does not fit my risk profile at all. I know some would so to each their own but for me it’s a no brainier to:

      Maximize income
      Still have appropriate work/life balance for health reasons
      Eliminate all personal non property debt
      Eliminate primary household debt

      Have plans always for the next steps. In my case the extra cash inflow post mortgage will be used for:
      Cash flow any extra support for children for college beyond my 529s
      Reinvest into main property enhancements
      Save for beachfront property (as of now)

  48. For someone who is largely about retiring early so you can stop grinding all the time and improve your quality of life, your take on THE BIGGEST DOWNSIDE of paying off your mortgage early being a reduction in motivation to keep grinding so that you can enjoy life a little more is perplexing to me.

    1. Perplexing indeed right? The bottom line is that if you want to build more wealth, a mortgage will provide you more motivation to get there and stay on top of your finances. I’ve written this post for you and others looking to achieve financial independence. Not so much for me, as I’ve got what I need already. I’ve also got all the motivation I need due to my children.

      1. Fair enough. As I have progressed up the ladder in my company, I have noticed that a lot of people share the same thoughts as you about mortgages serving as a motivation for employees. There are a few managers who give actually give high fives and celebrate with each other when a [good] employee buys a house because they know they have a hook in that employee for years to come and they are going to be extra motivated for the next few years as they start paying down that mortgage. Needing money to pay debt is a bit motivator.

  49. Yup, I know what you mean. I paid off my mortgage years ago and, about a year later, went out and bought a bigger house on a repayment mortgage. I figured that, with no mortgage, I was putting far too much of my increased savings into equities and should put more into property, but I couldn’t be bothered with rentals, buying a villa abroad etc. etc.. And, if I bought a bigger house in a nicer area, I’d hopefully get the daily pleasure from living there. I don’t really regret doing it and still see my house as part of my investment portfolio – as well as it being where I live.

  50. I am at your current planned retirement age, and believe me, I am not ready to retire. You may find that out, too. Best laid plans….

    My original program was to have my own business (have had for 25 years), invest in real estate and diversify into farming. Those three endeavors encapsulate 99% of the government’s gifts to the taxpayer in the form of deductions. Lately I have diversified into programs that offer either tax credits or tax free cash grants (solar and geothermal).

    All piled upon one another and intertwined reduces my tax burden significantly (as I am in the highest tax bracket-definitely the 1%). However, it all takes planning, as you suggest. The original real estate ploy was buy one annually (minimum down payment) for 10 years, then sell one at a time. This is especially good for commercial property since the depreciation time is shorter.

    And, just to note, I didn’t start in the 1%. I started with $16,000.00 from my deceased parent’s life insurance policy and nothing else. And I had $32k college debt (1984). To note here, loosing your safety net will get your butt in gear as well.

    The recession and housing market decline put the real estate program off a few years, and I have, as yet, not sold a single property. But, like you said, debt keeps you in the traces pulling for all you are worth. I think this is a good place to be.

    So, plan for cash flow in retirement, but realize that you may never retire, and that is a good thing!

  51. This is an interesting post for me. I have seven fixed rate rental mortgages (on 6 properties) in addition to my home mortgages, so obviously I’m comfortable with leverage. On the other hand my husband and I have a good bit of free cash flow and are torn between investing in taxable accounts, hoarding cash or accelerating debt payments. Our weighted average interest rate on all debt is under 4% – and the effective rate is even lower as we’re in the 33% federal bracket.

    My financial brain says it’s silly to prepay that cheap fixed debt. My money market should be paying more than that again in a few years. Still, we want to reach FI within 8 years so paying off our mortgage (and many a rental or two) by then would be ideal/necessary.

    As for motivation I think what you’re feeling is totally normal and rational. If you have few expenses and high passive income, why WOULD you be motivated to work harder? The less debt/expense you have – and the higher your income – the less you need (and should want) to work, at least in the traditional hustle sense.

    I struggle with that concept too. We’re so focused on early retirement/FI, but our lives aren’t bad at all now. I ask my husband regularly what exactly it is we are so anxious to do once we don’t “have” to work anymore. It definitely makes it harder to choose the frugal alternative, cut expenses, or pay off debt when we aren’t “backed against a wall” as you say.

  52. Mr. Utopia @ Personal Finance Utopia

    I don’t know, Sam. I get what you are saying. Debt can be an immensely powerful motivator to work hard. It was for us in our battle to pay off over $140k of debt. But not paying off your mortgage because you need the debt to motivate you seems illogical. To me, that’s like saying you should eat a bunch of donuts in order to get motivation to work out harder at the gym. I am pretty sure other forms of motivation can be found keep your drive up and fuel the creative fire within you. Maybe philanthropic efforts? I sure wouldn’t hesitate for a moment to pay off our mortgage if was within our means.

    1. Love the donut analogy!

      The other point Sam makes, about the federal tax deduction: you’re going to keep your mortgage because the government will give you back 32 cents after you paid the bank one dollar??? Just pay the 32 cent tax and keep 68 cents for yourself.

  53. I appreciate the article….as you are there and I’m in pursuit of it. BUT I will have to disagree and am a little perplexed to your article. If you enjoyed the things you were doing, why did you lose the motivation based on a demand of money?

    For me…I’ve never had much and constantly risked the little I had to make leaps in life. I’ve now done that successfully…BUT everything I want to pursue comes with HIGH risk. I like taking those risks, but not at the potential of losing my home that I’ve finally found a foundation. Hence, my reason for researching whether to pay it off.

    There are some benefits/burdens to each side, but imo if you need your back against the wall to motivate you….I’d suggest that you are NOT doing what you WANT to do in the first place. I pursue a lot of business, but mainly am in pursuit of my passions in the creative spectrum….and unfortunately there is no guarantee of roi on creativity.

    I do thank you for your article…because it showed where I still want to go, as today I’m in a frustrating place attempting to find the silver lining.

  54. Hey Sam,

    We are choosing to pay off our rental property first with an interest rate of 5.375, which is on plan to be paid off next November. Our original plan has always been to pay off our owner occupied rental property after the rental property to increase our cash flow and reach FI. We have financial milestones along the way eg pay off student loans, rental property, etc that we will look to take a review of the long term plan and if it is the best plan for our current situation.

    As time goes by and we reach these milestones, contribute more to savings/investments, it leads me to thinking we will not pay off the next mortgage so quickly, but rather put it all in taxable investments as we diversity our capital and have more options with our plan moving forward. Nice to see someone a step ahead and read about the results;)

    I certainly know the feeling of accomplishing one goal and needing to have another goal to follow up with next. I think finding that new goal in place is important, we all need to be motivated by something.

    1. Nice job! I would be paying down 5.375% debt all day long. That would be a great return for 2016 and years after that as interest rates remain low. Furthermore, you’ll ENJOY that payoff feeling and that feeling of progress.

  55. I think about buying a house instead of renting from time to time but I feel it would put my focus in the wrong place. I mean right now I rent and I make a good income and life is simple. I like that simplicity. I can focus on improving my skills in my occupation or my hobbies. I also have the ability to move to another country or something if some really great opportunity comes up. I guess I still think like a kid in some ways. The only reason I’d take out a mortgage is because I want to have a cat, but I’d have to rent a really expensive place to adopt one and it doesn’t seem worth it to spend so much money on a rental. Also I really like having no debt. Hard to say if I’d be happier with a mortgage debt, but I think I’m okay where I’m at.

  56. The largest debt we paid off was the car (still working on the house). We still love the feeling of being free of that debt (even 8 years later). We haven’t started paying extra towards the house as we still have other savings goals (maxing out retirement, kids college, investments, etc.). But once the house is paid off there are other purchase goals (low priority at the moment) that the extra cash will go towards.

  57. Holy timely article Sam! Good job paying off that mortgage so quickly. You probably have a pretty favorable mortgage debt to property equity ratio now?

    My wife and I have had this conversation multiple times over the past few weeks–pay off our rental property mortgages vs. buy another rental. I am 39, we have 3 rentals and are under contract to buy a fourth. Market value of the rentals we currently own is 1.75M, and we have 617k in mortgage debt on them. I think we are being fairly conservative, but if it were up to her she would pay off all loans before getting another property. The largest mortgage of 300k is a 15 yr fixed rate loan. (I also have 196k (I know ouch!) in low interest student debt btw)

    I like rentals and would like to build up a few more (enough to get me closer to the range of your passive income goal) before aggressively paying off the mortgages. Once we have 5 or 6, then I think we will be done with the acquiring phase and can focus on paying them down.

    I work a day job and we don’t have another current passive income source besides rentals. If we had another passive income source (like your website/book, etc.) we could be done with 3 rentals and might focus on paying them down now like you have.

    I think the points you make in your article are valid. It is a bit silly for commenters to chastise you for them, when it is your own personal goals and risk tolerance that influence how quickly to pay off debt.

    3.375 is a pretty amazing rate for a rental IMHO. My mortgage rates are 4.25% for a 4plex and 5% for each other multiunit (more that 4 units=commercial loan/higher rates). The loan I am considering right now for a 4plex puchase is 4.5% 30yr fixed with no origination charges and a small lender credit. I checked out 5/1 arms for investment properties and the rates and fees for the banks I checked were almost identical to a 30yr fixed! Maybe the banks wizened up after reading your article on ARMs vs fixed rate loans. :)

    1. Hi Spence,

      Good to hear from you. Let’s see how you guys feel w/ a 4th first, before going to #5 and #6! The older I get, the less hassle I want to deal with. I think that’s the same for most people.

      Your debt / equity ratio is pretty low, so that’s great.

      What type of education did you guys get to go $196K in debt? We’re a similar age, and William & Mary cost $2,800 a year in tuition!

      Don’t worry about chastisement. Being judged is a joy!


      1. Ha ha I know what you mean about wanting less hassle. I had a unit remodeled this summer and some exterior work done and I was reconsidering my use of rentals to build passive income. It was painful trying to get the contractors to finish the job bc they are so busy! I used your advice though about holding the carrot of another future job in front of the siding guy and I think it helped but he still took forever.

        $2800 seems like a steal for a reputable institution such as william and mary. I too was lucky enough to go to an inexpensive university for undergrad and graduate without debt by working summers, parental assistance and a small academic scholarship. The student loan debt is from med school, which was 226k by the time I graduated from residency 6 years ago. I had it much better than many guys graduating now, who are 300-400k in the hole after med school and at 500k plus after residency. ouch.

        I enjoy the blog and your frequent posts keep me checking back often. :)

        1. Sam, Happy New Year! Hope all is well with you. I agree that once we became completely debt free there was less incentive and motivation to keep grinding. One huge positive of having mo mortgage is that I can assure that my family is well care for and they do not have that burdens to pay in case something happens to me. I am risk averse so it does help me sleep at night. Hope you have a productive year Cheers!

  58. Very interesting article. My wife and I sold our condo (condo which we made 42% on in 4 years) last year and bought a home in San Diego. We owe about 485k after paying on our house for 7 months, (financed 493 after putting 31% down on a 30 year 4% fixed). My goal is to pay off our house in 6 years and we can do that, but currently I am not paying extra rather stocking cash away in case their is a dip in real estate and we can purchase a rental property.

    I’ve debated re-fing to a shorter term loan but am undecided on what to do. Our combined income is around $220k/yr, no debt besides $500/mo worth of car payments (0%) and our home. Sitting on about $110k in liquid cash + 80k in 401ks/deferred comps, both my wife and I are 28.

    My goal was to have our primary mortgage paid off by 35 and have at least one rental property. We have no kids, and don’t plan on it anytime soon.

    Would love to hear your thoughts on mortgage/rental options or pay down of primary.

      1. i would disagree with this logic. it makes more financial sense to pay off the primary loan than the rental loan as the primary loan interest is “above the line” and the rental loan interest is “below the line”. also, since you need to exceed the standard deduction threshold to even see “benefits” from the primary mortgage interest, the overall gain of primary loan interest deduction is very minimal unless you have a huge mortgage.

        however, there is benefit to paying off a smaller loan and just being done with it. i would assume most rentals fall into the smaller loan category when compared to one’s primary loan amount.

        1. How is the primary loan interest above the line? Both are deducted to income. One is your personal work income for a primary, the other is the income from rental income.

          In SF, the large majority of mortgages are way beyond the standard deduction as the median price here is $1.18 million. But yes, if you are below the standard deduction, the primary becomes less valuable.

          How many properties do you own? And have you paid any of them off?

  59. This hardly ever happens, but I soooo disagree with much of your post. So you lose your mortgate interest deduction of 33%. But aren’t you getting back the 66% you were losing. Also, do you really expect me not to pay off my mortage early because my home may catch fire? I have a feeling you wrote much of this post tongue-in-cheek? P.S. I’m adding an extra $400 per month to my payment and my 15-year mortgate will be paid off in 11 months, 18 months early. I can taste the champagne already.

    1. I’ve done the math and compared a 15 year to a 30 year mortgage.

      In scenario 1, you get a 15 year mortgage so you can pay the house off asap. Then after 15 years you invest what your old mortgage payment was for the next 15 years.

      In scenario 2, you take a 30 year mortgage and invest the payment difference between the 15 and 30 year mortgages for 30 years.

      So in 30 years, in both scenarios, you have a paid off house. But guess who has a higher investment portfolio and likewise a higher net worth? That’s right, scenario #2! The person who take a 30 year mortgage and invests will have more money in 30 years than the person who took a 15 year mortgage and started investing after the house was paid off. And that’s only assuming an S&P 500 historical average of 10% Rate of Return. My mortgage is at 3% and I earned 35% on my investments last year. Why would I want to pay that off early?

      So yes, while you’re drinking champagne because you paid it off early, I’ll be drinking champagne because I will be retiring early because my net worth has skyrocketed by choosing not to pay off my house early.

  60. Sam, I agree with you. I have always viewed myself as some sort of money generating machine with a bunch of different cogs (passive income streams) that need lubricating. The result when the machine is finished is an acceptable life style for my family and I that requires no more input in any way. The problem was that the only way to get the machine moving efficiently was to continually work on all of the passive income streams at the same time. I started doing this 15 years ago and just kept my head down.

    I purchased my first property a single family 3/1 in 2001 in Santa Barbara, CA and had to borrow a bunch of money and stretch to acquire it. I rented out 2 rooms and watched every penny. In the run up to 2008, I leveraged myself to the hilt and sprayed out all of the leveraged money into different income streams and investments.

    In 2003, I purchased a condo in Santa Barbara, CA and fully remodeled it to use as a high end vacation rental. Ultimately I sold it for a loss due to horrible neighbors. I chose to have less headaches down the road and take my loss. When I sold the condo, we were going to move into the house but I ended up finding long term tenants and now am cash flow positive and location independent.

    My current debt/cash ratio is around 100%. I am financially independent at 42. I currently have 5 passive income streams that provide me with an after tax amount of around $84K and we live on about $60K.

    I was a firefighter in SB and was forced into an early retirement due to an injury. Since I was not tied to SB for a job anymore, we had some choices to make. How much is enough? We decided to use a bit of lifestyle arbitrage and move to Nicaragua instead of staying in the states and one of us work.
    I decided to have a child at 40 and it has been the best decision I have made. Instead of working, we have chosen to coparent in Nicaragua. Our daughter is now 2 and goes to a sustainable, organic farm school that costs $234/month. Her teacher has a masters in early childhood education, speaks 5 languages, and babysits for $7/hr.
    I agree with your $200K maximum happiness even though I don’t really have any desire to put forth the effort to achieve it now. Being financially independent at 42 has made me realize that now, I have more time to deal with myself in my head and try to be a better person every day.

    Add taking care of my daughter, exercise, etc. and my day is booked. In my humble opinion, If I was in your shoes, I would work until I had a child and then I would coparent like I am currently doing. My daughter is only going to be a child once and I am maximizing time with her. I can always work later if I want to. Sorry for the rambling, hopes this helps.


      1. I do have a tax free firefighter pension but I was also smart enough to have long term disability insurance as well. I chose long term security of the pension as opposed to up front $ like most people in terms of salary. It wasn’t too funny during the crisis when everyone was screaming that firefighters and teachers pensions were bankrupting everyone though. It seems to me that 99% of everyone that I meet ( and from the comments) that most people just work and work and don’t really know how much is really ENOUGH. Most people can’t even answer the question of how much money is enough? I can and I live it daily. Retired at 42, living abroad, saving $2k a month, still chasing unicorns and religiously following AAPL almost every day since I bought my first shares for $44 in 2004. I get to spend every day with my family or do anything else I want to within reason like you, just on a lower cost basis. While I was still working as a firefighter, I used to go to Thailand for 2 months paid vacation and was amazed at how much less I spent and how much more I enjoyed life living out of my backpack in a $10 night bungalow right on the beach. Then when I came back home, my bank account was actually larger than when I had left. By using lifestyle arbitrage now, I spend a lot of time in cheap countries, vacation in expensive ones, and visit the states for 3 months a year. During my 15 years of working/investing, my liquidity, cash flow, assets, etc. were all over the place. At times, I had 0$ and thought I would go bankrupt, other times $400,000 HELOC at my disposal. During this asset accumulation phase I got comfortable with debt, what I need to cash flow, what levels=no sleep and panic. These levels are different for everybody and have to take in account risk tolerance, goals, time horizons, etc. Anyways, once I figured out how to take care of myself and my family financially (thanks for your help) I have tried to drag others along to financial nirvana but no one wants to change their status quo. People ask for advice then when I ask them what their goals are I never hear from them again. Thanks again for all of the information that you provide.

  61. Interesting in the UK most fixed mortgages are for 2 years, there’s currently only one product for 10 years which comes with a £1.5k application fee and a 4.5% interest charge (as oppose to around 3.4% on a 2 year fix) so most people opt for interest only and get hit with expensive remortgage fees every 2 years (usually around £1,000 to remortgage including broker fees).

    Also from 2017 we will no longer be able to use interest payments as an allowable expense (unless you run the property through a business in which case the lenders available considerably dry up).

    Family single lets are beginning to look a lot less favorable for me, I may buy one more then hold off until I can find something more creative (development opportunity, multi-let ect) that pays better cash flow.


    1. Americans don’t realize how spoiled we are w/ our various debt instruments. Are debt markets run deep, and are more than twice as large as the equity market. Many countries only have one year fixed!

  62. Sam, 3 of your 5 reasons for not paying your mortgage off early are either to minimize the interest cost or to take advantage of numbers that only exist on paper.

    1) Lose your interest deduction?! So you’d rather pay the bank more (interest) just so you can save money on taxes?! That makes zero financial sense if you can afford to pay off the mortgage early.

    2) Lose a low borrowing cost?! So you’d prefer to pay 3% interest over no interest (due to no debt or paid off early debt)?

    4) Decrease your financial return?! So you’d prefer to trick yourself into believing you’re making a great investment because you’ve kept your down payment and/or equity low? You ignore the negative return caused by the interest!

    Come on, Sam, you’re smarter than this!

    The other two reasons are legit…delete the three above, it’s not wise advice. It’s the advice of banks.


    1. I’m actually not very smart, which is why I need you guys to provide your wisdom!

      1) Mind the liquidity gap

      2) Mind the liquidity gap

      4) It’s about maximizing your capital. If you have other investments returning more, then think twice about paying down a sub 4% debt that’s deductible.

      Are you for, or against me paying off my mortgage I took out in 2003? What’s your current mortgage/real estate scenario?

      1. Hi Sam,

        Well, I know you’re quite smart because you’ve been able to alleviate yourself from the corporate handcuff (to which I’m still shackled) to build multiple passive income streams and greater freedom with each month.

        My comment had a bit more sass than it needed.

        I get the liquidity gap point. If the question is pay down the mortgage or increase investments, there’s a lot to consider and your items fall into that thought process.

        I agree with your pay down of the 2003 mortgage – more income has become free for new investments or to build up that $100k reserve you’ve talked about. I’ve been listening to too much Dave Ramsey recently and the idea of being debt free has really taken a hold of me, although I realize the value in carrying leverage to maximize income potential and asset value growth 10, 15, 20 years down the road

        What I don’t like is rationalizing carrying debt because of a tax break or not considering the cost of debt with the rental income in the ROI equation. It’s easy for all of us (since we’re human) to rationalize decisions to our favor and I think this hurts good decision making.

        The only exposure I have to real estate is $20k or so in a REIT, which has treated me quite well since 2007 – but I have yet to indulge myself in “real” estates! Some day though…

        1. Dave Ramsey is the guy who lives in that 13,000 square foot mansion in Cool Springs right? What a lucky man of God :)

          If everybody didn’t have a mortgage, the financial crisis wouldn’t have happened. So yes, I can definitely get behind more people for paying cash or putting way more down than 20%. I cringe at those putting 3% down per the government loan programs. It’s nuts, just like the Cash For Clunkers program.

          I’m very focused on capital optimization. I’ve done the math and if one is going to make around $250,000 – $350,000 a year, then it’s pretty optimal w/ a mortgage rate of under 4% to borrow up to $1M, while investing the money in other asset classes. The laws and tax system has created this ratio.

          What $ of your net worth is $20K in REIT, and how is your net worth broken down?

  63. What was the real motivation behind paying off the mortgage?

    – Was it to feel more secure? Done.
    – Increase cash flow? Done
    – Pride of ownership and sense of accomplishment? Done
    – To free up time? Done

    If it was one of these things, then it’s never a good idea to complain about getting the thing that we want.

    I’m guessing that you’re probably like me though, in the fact that you always need a goal to be striving towards. It’s life giving to have tasks that we devote our lives to, whether that is paying off a mortgage or running a marathon.

    A trick I’ve found is to have massive goals that I can break down into smaller steps. For instance, owning 20 properties in cash is broken into 20 separate goals that keep me motivated. Each goal drives me and keeps me motivated, but can be enjoyed and celebrated along the way.

  64. We just locked in a new mortgage. There has been so much press about the fed raising rates, but rates are still low.

  65. I wonder why no one said pay one buy another property… thats not enough motivation to work harder? Buy two more then… i was supposed to have 1 more year to pay off my property but, moved into a bigger house much bettter location. Still, thinking what to do next.

      1. The correct number of properties to own is: as many as you can find that create positive cash flow!

        You need to not just leverage your money, but also leverage your TIME – get a property manager! I could only own AND manage a handful of properties with the work I do, and even then, I wouldn’t be able to manage them effectively. I would probably get burnt out, because I don’t like the management aspect.

        I use my brain/body to find good deals, and I pay other people to be in places I can’t be, so that I can stay in a place that is a better return on my TIME asset! Any property I buy, I run the numbers assuming that I will have to pay 10 percent for property management – even though I don’t have PM now, if I figure it in when I do my purchase calculations, so that I KNOW it will make sense if I do have to use them.

        I routinely pull equity from paid-down properties to put down payments on additional properties, so that my out of pocket is negligible – usually just the earnest money when I purchase the property. Then I effectively take a 100% loan on the new property.

        We use 15 year mortgages, because our kids will be ready for college on about that timeline, and we like the overall lower interest expense, and lower rates compared to a 30 year note.

  66. Our debt timeline went something like this:
    -Graduate pharmacy school mid 2010 126k in debt w/ student loans
    -Live off husbands salary and use mine to pay student loans off mid 2012
    -Decide to pay off mortgage while we were at it…another 70k by end 2013 (yes we live in Midwest)
    -Pop out baby #1 2014 (after 5 yrs married, no debt, I had my lasik and dream vacation, he bought boat). I cut back to working 2 days/wk. Why not.
    -Upsize home 2015 and take out mortgage- baby #2 on way. We will pay off last 126k by 2024 (Less motivation this time around. We rolled half previous home sale into this and kept rest savings. We still go skiing in winter, another vaca to somewhere warm, max out 401k…just not bothered by mortgage payment currently).

    Did I lose my motivation to work hard? I lost my motivation to work 5 days/wk. I kill it the two days I do work and love every minute of it. I also love mom life. I wouldn’t trade working more for a year to pay off this mortgage for the time I have at home with little one…soon to be littles ones

    1. Thanks for sharing Debra. I have to imagine most moms/parents would lose serious motivation to work so they could be with their children growing up. I’ll let you know if I ever get there!

    2. Totally agree with you Deb! As a mom of 3 kids, I worked for years then had kids and decided to forgo the great salary and stay home- don’t regret it one bit! You have 1 shot at this and they grow up fast! Plus I see my career crazy friends and they don’t have the energy to discipline the kids which is not good as they can get into trouble & I’ve seen it. Sounds like you have the perfect balance.

  67. Food for thought:

    Maybe paying off your mortgage felt less rewarding because you have 3 others to pay off.

  68. Kate @ Cashville Skyline

    I think about this a lot, Sam. I’ve got one mortgage and I refinanced to a 15-year loan at 3.25% a few years ago. With ~$130K left, I probably won’t be paying it down early. I’ve got almost an acre in a hot inner city neighborhood in Nashville w/ $100K equity. I want to eventually add additional dwellings onto the property.

  69. Paying off my mortgage early helped me make more money per hour as I felt the freedom to move around as a contractor. Some contracts were lucrative but short term and I found myself without work, so having a low monthly expense helps cushion that blow.
    Prior I took safe but less than ideal jobs.

    You are right about not having the motivation to work extra hours. But I have found fear a terrible long term motivation anyway that comes with its own problems. The freedom felt with no mortgage surpasses all the cons IMHO.

    1. That definitely is a positive angle to look at.

      It’s really “manufactured fear” with a backstop knowing that the worst case scenario is still OK. That’s the “issue” with living in America. The worst case scenario is still better than so many other parts of the world’s average scenario.

  70. theofficialjohnandre

    Seems like a lot of capital tied up for a little monthly payoff. Why not sell and throw it into some preferred and reits, never touch the principal and enjoy the dividends?

    1. Although $4,000 a month in rent is not huge, the rent is going up to $4,100 – $4,300 a month next June and the place is relatively easy to maintain for the income amount. If the rent was closer to $2,000 a month, I may reconsider. The market is definitely strong now, and I think we’ve got at most two years left before prices stop growing or goes down.

      But over the long run, I’m bullish on SF property and think it’s one of the cheapest international cities in the world. The tech/internet industry will continue to grow, and the incomes are eye popping now for college graduates ($100,000 to start). All these guys will make more they decide to settle down in their late 20s and 30s. Supply is limited here b/c you can’t build. And, the lifestyle and weather is amazing.

      How’s your rental income/passive income doing? Do you have a target? I’m still $50K away from my passive income target.

      1. theofficialjohnandre

        I’m close to $750 a month from dividends and $200-300 a mnth from sales residuals. I would love to hit $2k a mnth before age 40…(35). My goal in life is to escape the 9-5 grind but it’s gonna be a couple years (

        San Fran and Manhattan real estate will always hold up, there is only so much limited space. My uncle bought a 2-bedroom condo on California st in 1981, he is up 18 fold…

        I also meet clients(seniors) all the time that own paid off $750k real estate but have under $20k in income and live in almost poverty….In those cases I think they are crazy to stay but they refuse to sell.

  71. Hey Sam,

    The 4 first point that you make do make sense from a pure financial point of view. There is not a lot to argue against that.
    The question is if it is the right solution for everybody?
    Personally, we have been paying down our mortgage faster than needed. Both on the rental property (sold in the mean time) as on our main house.
    1- due to the tax situation in Belgium, we did not loose interest rate reduction. we make sure we stay above the threshold.

    2- Loose low borrowing power: as we do not plan to buy the next 15 years (never say never), this is not valid for us. I admit, I have no idea where the rates will be 15 years from now, but it is a non issue at this moment in time.

    3- Tie up capital in illiquid asset: As it is our long term plan to live in our main house, it will be paid off before we plan to move. We do make sure we are insured as needed to cover disasters.
    The advantage of this tie-up-of capital is that we will own the house outright in about 9years. This comes with a big peace-of-mind for us that is worth a lot.
    In my net worth, I do not take my main house in consideration. Even if I would, we are about 50pct in real estate. Not sure if real estate is better or worse than the stock market, or alternatives, as they all have crash periods where they make paper loss of 50pct and above.

    4- decrease financial returns: If you speak of a rental, then this is true. But you need to take into consideration the effect of investing the free cash flow at an average of 8pct over time. I am curious to see what this would give in various scenarios. With the bigger down payment, the free cash flow would be bigger.

    5- Less efficient with your time: This is a very personal argument. My time efficiency does not depend on the mortgages that I have. My drive to work comes from other items like the will to realize projects and see results.

    “The only people who really complain about having no debt are those who are greedy for more money. ” –> Good thing that it says: people that complain. There are people that are debt free to have peace of mind, to live the life they want worry free off obligations. So, I think I agree with you on this one (I needed to read it a few times…)

    Thx for putting up the article. It gives good discussion and insight to consider when investing in real estate.

    1. There is no one solution for everybody. No way. The Debt / Cash ratio I’ve provide is a guideline by age / work experience for financial security. And this article gives people who are focused on paying off their mortgage a glimpse of what may happen. The feelings are very real, and real time. I don’t think many other people would bother to share, but I will until I’m totally demotivated :)

      Please read, “How Does It Feel To Be Financially Independent” and “What Does Early Retirement Feel Like?

  72. I have to tell you Sam, very confused by this article. At the end of it you casually mention you have three other mortgages. Why isn’t that motivating? Imagine a scenario where the local economy blows up (very possible since SF is dependent upon primarily one industry, 3 st most if you include finance/touridm) and your renters stop paying. Now you’re left with three mortgages and no cash flow. I would want to get out from under that weight on my shoulders ASAP.

    I’m not sure what your total net worth is relative to the market value of your homes. But if the total market value of your homes is more than 50% of your net worth, I’d be scared every morning I woke up. Not suggesting it’s necessarily a bad thing, as you describe there’s an advantage to leverage. However, there’s also the risk that comes with it…

    1. It’s weird isn’t it? Part of the reason is I’ve had three mortgages for eight years already, so I’ve grown accustomed to them. When I got my fourth last June, it felt too much, so I paid off my oldest one.

      One mortgage is a primary mortgage of my new house, so I tie that to my current total income. B/c the total monthly payment is less than 10% of total income, I don’t feel scared. I really like carrying a max mortgage amount based on a 2.5% interest rate.

      The other mortgage is a vacation property mortgage. B/c it was a badly timed purchase and is a 30-year fixed mortgage, I don’t want to throw good money after bad. I’ll let the payment run its course over the next 22 years to have it fully paid off.

      The final mortgage is another rental where total rent is about 50% higher than total monthly cost, and 100% higher if we don’t include the principal pay down of each mortgage payment. This one, I’m not so sure what to do. If the experience of renting it out is OK, then I will keep it as the cash flow is the highest. It’s also the most expensive property in my portfolio, which can therefore lose value (or gain) the quickest. Hence, maybe I will sell to de-risk at one point.

      Like I say in the article, it’s only when things get a little dire, when you really start to get motivated to hustle. Real estate is about 40% of my net worth, and maybe less, depending on how to value my business.

      One thing to note is that rents went UP during the dotcom collapse from 2000-2003, and UP again during the economic crisis from 2008-2010. I know, b/c I was a renter and landlord during this time period.

      This article simply shares with the community the real things that I feel. And the lack of motivation is the biggest downside.

      Please share with us what your current debt and motivation situation is. Thanks!

      1. I’m fairly risk averse when it comes to property (perhaps a mistake). My primary property was purchased in 2010 near the bottom of the Atlanta market. So… it’s a 2 bdr condo and my mortgage is ~$95k. I have ~$150k in cash (if you include CDs) and the rest of my net worth is in equities (mostly sector ETFs), some P2P lending and bonds. Still looking for that unicorn private equity or hedge play!

        Honestly the reason my mortgage is so low is for lifestyle reasons, as much as financial. I don’t know how long I will be in Atlanta (though I’ve been saying that for 5 years now)… and I travel 250+ days of the year. So, it’s really all I need right now (single guy) and it’s 99% maintenance free.

        I thought about buying a townhouse or something… but that’s too much space for one person and a lot of wasted utilities. So, I figured I would wait until a significant lifestyle change took place to upgrade (marriage, job change, etc). I may or may not keep this place when I buy another. I like the idea of trying my hand at landlording… but my HOA makes it tough to lease out.

        1. A $95K mortgage and $150K cash is pretty conservative, which is absolutely fine. Is there a reason why you don’t want to pay it off and have $55K in cash? How much do you have invested in the markets, what is your total net worth, and how old are you?

          1. 30 years old, ~$600k

            I guess I enjoy the tax write-off and having the surplus cash at hand. (To invest in property, equities, X factor business, whatever!)


  73. Agreed. It is hard to be motivated now at work since I paid off the mortgage. So, now I am paying rental rates in Chicago for my living expenses. (My taxes are $425 a month, assessments are now $210 a month and taxes and assessments are going to go up yearly). Utilities is about $350 a month ($142.50 cable, $35 gas in summer, $200 gas in winter, electric from $50- $100 depending on weather). My mortgage was about $600 so I am saving that money. The extra money that I was using to pay off my mortgage is now going to savings, hanging out with friends/co-worker and traveling more as I stopped doing much of that when I focused on paying off the mortgage.

  74. I like the idea of paying off your mortgage. I do disagree with some of the reasons not to, but many of those are personal preference. Some people don’t mind carrying debt, others, like me, would rather not. Yes, debt is a great motivator, but, now that I have paid off my mortgage, I feel I can take more risks, not less. For me, it gives me a better sense of where I am financially, and when making financial decisions, there is no more mortgage albatross hanging around my neck.

    This was a relatively recent decision for me. For a while, I just paid the interest, and dollar-cost averaged what would have been the principal payment into other investments. This just gave my wife and I a little more liquidity until we decided how long we wanted to stay in the house. We’ve decided to keep this house long term, so might as well pay it off. If someone wasn’t planning to keep their house into retirement, then there would be less reason to pay it off.

    So that’s a middle road option for someone unsure of what to do. Just save what would be the principal payment somewhere else for a while. Paying off your mortgage is one thing; having the ability to pay it down when you want is equally as good. The spreadsheet doesn’t always contain the right answer for everyone. Part of the decision is definitely a personal one.

    1. That’s very interesting that you had an interest-only loan. I can see why you’d actually want to lob some principal down to make SOME progress in paying down the debt. Do you feel you bought too much house based off your income?

      1. Hi Sam, No, I didn’t buy too big a house for my income, quite the opposite actually. We’ve been in the same house for over 20 yrs now. It’s the same house we bought when our combined income was 50k per year; it’s now 10x that! The interest only mortgage was a refi choice. When rates were around 3%, and after writing them off you were down to 2%, it was almost free money. Again, we didn’t blow the difference, we just dollar cost averaged what would have been principal payments into other investments so we could always apply the capital toward the home if we wanted (or needed) to. We ended up just paying it off through current income, and didn’t touch the investments.

        I think the interest only framework is great for people who are disciplined savers. It gives great flexibility for your monthly cash flow, and it does reduce your monthly obligation if you need to direct capital elsewhere. Plus, interest only mortgages are simple-interest vehicles, so, if you do use a chunk of capital to pay some of it down, your next monthly bill is less; you only owe interest on the remaining balance. Very different from a traditional mortgage where you can send a big chunk one month, and your next month’s bill is the same.

        Keep up the good work!

        1. In a traditional mortgage, the bill will be the same after you’ve applied a big chunk to principal but the proportion of interest:principal will skew to more principal.

          You can cut several years off the loan by making extra principal payments, i.e. $100/month, in the early years of the loan.

  75. Sam,

    I feel your passion, and like you without something to work for I too become lazy. For us it was having a child that gave me a strong kick in the butt, especially since education costs for International school in Asia run very expensive and start from age 3. So now I’m working harder than ever but am driven by a tangible goal. It’s not a bad thing.

    You mentioned you wanted to have kids one day- that will certainly reignite your passion.


    1. Mike,

      I’ve been thinking of the family thing for a while now. Might be time! ISKL in Kuala Lumpur is $40,000 a year. Ouch! Gotta get one’s employer to handle that bill.


      1. The growing trend is that employers don’t cover that anymore but pay a higher salary for a “localized” package. It all comes out of the same pot so it’d be hard to pull down the big bucks of a few hundred K a year plus school included. It depends on the company and the location. Also if the company pays for the school the employee is liable for the tax on this (35% where I live).


  76. I 150% disagree with this article’s point of view. Let’s go step by step:

    01. “Without debt, life is easy. And when life is easy, why would anyone but the craziest of people bother to take risks? It’s totally irrational to work hard if there’s no financial burden.”

    FALSE. I for one, prefer to feel free, without any chains or ropes around my neck. Also, the benefit of $0 debt is that no “Damocles’ sword” will hang upon you head, should you lose your job (or whatever the primary source of income is). Absolutely no stress and free to flee like a bird, even change cities, states, countries, and even continents (rest assured that I was/am doing what I am preaching right here).

    02. “The biggest downside to paying off your mortgage is the complete loss of motivation to take risks and work hard. Only when your back is against the wall will you do everything possible to change. Having a mortgage is like an implicit back stop to not slack off.”

    FALSE. Why would one assume that the mob/herd/common folk should be treated like an irrational animal, with coercion and ‘carrot-and-stick’ attitude? This is absolute immature as mindset and philosophy of life.

    03. “You lose your mortgage interest deduction. The mortgage interest is treated like a business expense for rental property and a tax deduction if its your primary residence. The higher your tax bracket, the more valuable the interest expense.”

    Hmm, you forgot to mention that for non-business expense reporting purposes, one would have to itemize, instead of opting for standard deduction. If the mortgage interest deduction make for much more than that, then yeah, it’s advantageous. Also, why should I fatten the greedy Banksters’ already-fat pockets and yacht, caviar and champagne!? I prefer to not have any mortgage at all, in the first place!

    04. “You lose a low borrowing cost.”
    Isn’t it better to hard work and massively save money for whatever project or needs you have? Why pay the greedy Banskters – the ones with the monopoly of creating ‘money’ out of nothing?

    05. “You tie up capital in an illiquid asset.”
    Seriously? And whecould n you make the monthly payments to your mortgage, aren’t you still transferring out your own capital to others? Yes, it’s true on the other hand that you decide to sell the house and have the new buyer picking up ‘the tab’. But the same can be done when you are a real, 100%, cash-down owner of a ‘house’. I’m using quotes for the term ‘house’ intentionally here, because what we call ‘houses’ here in the whole North-America (Canada included) is pure CRAP. Wooden barracks, disposable homes, that one could not safely pass from a generation to next. Not even that wood is real wood but recycled pieces of wood glued together. Fire anyone? If you’re looking for HOUSES, see Europe: concrete, brick, mortar, steel roofing, rock-solid energy efficient heating systems (not the other “watter barrel” water heaters or “forced air” “heating” CRAP). That’s what I call a HOUSE.
    (have you ever wondered WHY high-rise buildings, or low-rise governmental buildings, schools, libraries, retirement homes, hospitals etc are ALWAYS built correctly and not out of wood crap!? Simple, because those are meant to last, not to be disposable. But I digress).

    06. “You decrease your financial returns.”
    True only partially. If you’re talking about financial SPECULATION called “stock market” (which is also rigged – see the CIA’s “Stock Market Plunge Protection Team” and read one of Richard Ney’s books i.e. “The WallStreet Gang”), then yes, it’s true. But for “safe” investments like CDs, saving accounts, bonds etc, the mortgage interest, no matter how “low historically” is, is still considerably higher – to FATTEN the banksters’ pockets and bellies!

    07. When it comes to making money, less debt can make you less disciplined.

    Total BS.

    08. The only people who really complain about having no debt are those who are greedy for more money.

    FALSE. I am one of the people who does not own a cent to anyone. And I don’t think I’m greedy or grumpy and complaining. My only frustration is that I have YET to find a way to PRESERVE the capital I’m making from my employment income (being also the sole breadwinner of a family of 4). I desire neither to speculate, nor to make more money out of nothing. I only want to preserve the fruits of my hard work (inflation-protect it). For example, as a beautiful analogy – I’m looking for a way to get something similar to those grandma’s confiture jars, so that I can enjoy them many years after they were made. Perhaps someone here on the forum can come up with a great & working idea as to how to achieve such goals.

    09. “After inputting various realistic expenses in my retirement planning calculator, I’ve calculated that I can pay off all debt using current and anticipated cash flow in under 20 years.”

    So, why paying 150k-250k more over the life of that debt to the banksters? Simply because ‘time is money’ ?!

    10. Regarding you poll, one option is missing here:
    “-Poll: How many mortgages do you have?
    => None, because I paid it all off already.
    => None, because I don’t own property.”

    Please add another option there: “None, because I purchased my house through hard-working, sweat, responsibility, massive savings rate, and decent frugality”. And I will vote for that option, because that’s me and what I did. Crazy, eh?

    Thanks for your time.

    1. Love the passion and criticism! Just to clarify, why are you still working for the man then? Is it because you love your job? Don’t get me wrong, we need more people to work in order to pay taxes to help those of us who do not work.

      Can you tell us about your financial situation and age?

      Also, do you approve or disapprove of my mortgage paydown? It’s hard to tell based on your comment.


    2. Vasile,

      Regarding your point number 8, consider buying assets that pay a regular income stream and are inflation protected. Stocks with a long dividend history and solid balance sheet that are in consumer staples and defensive sectors have such pricing power and a decades long track record of dividend growth and are a good place to park your savings. I was as frustrated as you until a few years back and since then I’ve been adopting the above strategy and am happy about this thus far, even with the market turning downwards. The difference between investing and speculating is that the former has a mathematical expectation of results and the latter does not- this is due to investing in an asset that has a reasonable chance of providing continued cash flows and distributions to the owner.

      Knowledge is power.


      1. A few points:

        1) I agree w/ Mike regarding dividend stocks. I’m my own mutual fund holding the higher yielding dividend aristocrats, Dogs of the DOW, etc. Not concerned if the market drops, only if a company cuts their dividend!

        2) Sam’s Point #1 – “mortgage interest deduction” is still silly to me. Pay the bank $1000 interest so uncle sam will give you back $250? (or so depending on tax bracket). You’re out $750 of disposable/investable income. Without the mortgage, I’ll pay $250 in taxes and have $750 in my pocket. The only reasonable arguments I’ve heard for having a mortgage are Sam’s #4 leverage and the one he didn’t mention – in the future, you’re paying with cheaper ‘inflated’ dollars.

        3) Several decades ago I had a custom home built. After moving in, I actually felt ‘a void or emptiness’ because I’d spent almost a year immersed the design, planning, and construction process, suddenly there was nothing to focus on… you might simply need a new goal.

  77. Congratulations, Sam! I am paying down my mortgage aggressively and I can’t wait for the day when I own my condo in full. My living expenses will be about equal to my ESPP contributions plus discount! So my plan once I pay off my mortgage is to invest my entire paycheck and live off of my quarterly ESPP proceeds.

  78. Sam, interesting topic. I believe that paying off a mortgage is a matter of personal/emotional preference as much as it is what makes sense financially. Having a tangible “home” is security for a family.

    I think mine stems from the fact I saw my parents lose their house to forclosure during the late ’70, early ’80 skyrocketing interest rates and inflation as well as struggling to make ends meet. Therefore, after living for years in rental homes, apartments and struggling to see my parents keep the lights on and food on the table … I personally vowed to study and understand personal economics and become finanically independent and most importantly not put my family through how I grew up and keep a solid foundation and sense of security with owning our home first and foremost. I guess this was my motivation early on based on my child/adolescence years … therefore, I put in the effort, worked hard, funded my own education through academics/athletics, received a degree and fortunately a very solid 30 year career so far.

    We personally have paid off 2 mortgages well before their time. Our first “starter” house after 17 years and the home we currently live in after 10 years. Both homes were newly constructed with no upgrades as I am very handy and through the years have added sweat equity to both homes building sanctuaries both inside and out.

    My wife and I are 52, with a goal of retiring at 55 to pursue other interests. My wife has stayed at home to raise our kids, although I have been nudging her to go back to work so I can retire earlier :-). Both of my parents died relatively young (early 60’s) … although my wife and I are very healthy…we never know how much time we have. Again, another personal motivation of why we have no mortgage…option to retire early.

    We have no debt, $2.6M Networth (17% Home Equity; 12% Cash; 18% Taxable Investments and 53% in Non-Taxable Investments) – 2 Children (Both educations paid (4-Years Only)…they are funding their respective graduate degrees themselves while working).

    Again, very interesting topic, very insightful site and excellent comments from both you and your readers. I have recommended your site to numerous collegues, friends and especially my kids. Keep up the good work!

    Thank you!

      1. Thanks Sam. Yes, I have read your post about convincing your Spouse to work longer…I will have to tread lightly :-) … Yes, thought about retiring now … but 55 is my number as I will receive a small pension that I will use to pay for annual health insurance. Secondly, I anticipate a wedding in the next 2 years … I like my job and people I’m working with and the stress is tolerable. What I really want to do is look for ways to add more passive income outside of dividends, investment gains while keeping me busy doing what I like to do. That’s my next big hurdle and I don’t know where to start. Any suggestions?

  79. Sam, I think you’re just bored. I’m not inside your brain, of course, and I’m not trying to tell you how you feel, but it sounds to me like you didn’t lose motivation because you have one less mortgage (as you mentioned, you still have a few more you could get fired up to tackle). It sounds like you just temporarily lost a little bit of your fire. It comes in cycles, at least for me.

    You could just enjoy the break, and wait for the fire to come back. Or you could try to find a new thing to get you excited again (a new property, perhaps?). Or maybe even consider a career shift, or volunteer work, or something you wouldn’t normally do.

    If I were you, though, I would not sell the property. Unless you really are burning the candle at both ends and you can’t stand the stress of the tenants in that property, I would just hang on to it. Because most likely, this energy slump of yours will pass and you will wish you had the property back. If you really have the urge to simplify, hire a management company to manage the property for you. You’ll still get some of your income from the property, but you won’t have the stress. I bet a few months’ worth of looking at what the management company charges and thinking “heck, I should be doing this myself” might snap you back into work mode.

    I hurriedly paid off a chunk of debt and sold off my boat anchor of a condo (NOT a good rental property), and that threw me into a bit of limbo for a while, too. I was working for so long at paying off debt, that I felt insecure, like I was at a weird crossroads, after I paid that off. My next step is to save aggressively and get a fourplex, and pay that down faster. You just need a next goal to work on. Hang in there.

    1. In the past, I would agree w/ you that I’m bored. However, after going to the DMZ, Ankor Wat, and being a tennis junkie at the US Open for 10 hours a day for four sessions… I’m actually not bored. I used to say/think I was bored a lot. Now, I’m just demotivated to work extra than normal or take on new challenges.

      I suspect an ebb and flow. Working small projects to improve my house here and there has helped. It’s probably time to start a family.

      1. ” It’s probably time to start a family.”

        Father of 3 boys here. I assure you that will cure your boredom. Might lose your sanity, but will never be bored.

  80. As long as a person doesn’t have too much of their net wealth in their house, that person should be good. As indicated in your post, recommended asset allocation by age, no one should pile into real estate, unless they go the self-belief route.

    The leverage aspect kind of stinks, but a person won’t blow themselves up (leverage works in the opposite way too!)

    I might be in the camp that having debt is a bad thing, but having an extra $1,308 in the bank a month sounds like a good thing to not complain about.

    Have a good one,

    1. Agreed. When housing went down in the last crisis, it took the median American net worth down by the same percentage b/c housing accounted for 80% plus of the median American net worth! That is crazy high.

  81. Would say Congratulation that you’d done it!

    Was thinking also paying off my mortgage early. This is the only debt my family has and it not that much. But if I see I have a surplus I might end up buying expensive wine than a three-buck-chuck (already include inflation here).

  82. Wow! You hit the nail on the head for me. I have been trying to find some real motivation, but it’s been hard since I am doing well financially. This post helped put some perspective on it, since I too am very goal orientated. Having a big mortgage hanging over my head would definitely be the fire needed to get that taken care of quick like. Thanks for giving me something to think over.

    – HMB

  83. I agree with the idea of keeping mortgages as long as possible in most situations with the rates being what they area. I just purchased a home with <20% down so I am making extra payments until I can kill PMI. After that, I plan to just make the minimum payments for the remainder of the mortgage. My rate is 4.00%, but once you figure in tax and inflation, the interest costs almost nothing

    1. Yes, please get up to a LTV of 80%. PMI is a waste of money.

      Also, 4% is OK, but not an amazing rate. I take it you took out a 30-year fixed? The 10-year yield is at 2.2%. I’m a fan of shorter fixed duration loans. See article.

      1. That is valid. I hope to kill the PMI in about a year. At that point, it would definitely be worthwhile to at least look into a refinancing

        1. Agree that having PMI is now a waste of money. But in years prior when it was deductible like interest, the argument for having it was different.

        2. Good luck! We got out of PMI a few months ago (took us two years total), and it’s such a great feeling. I always felt a little like I was getting robbed when I would do the math on how I was paying .42% on my ENTIRE LOAN for not having the much smaller chunk of money (6.25% of the loan) necessary to get out of PMI. I don’t regret buying without 20%, but I am very glad that that monkey is gone.

  84. Completely agree on the power of a sense of urgency, even if it’s artificial.

    However, the older (and hopefully wiser) I get, the more I value my time and my experiences over money. As long as I have the money I need to live the life I want, in not motivated to work harder just to have more money.

    With all your “wasteful” experiences this year you’re enjoying the freedom you’ve earned.

    Enjoy it.

    I hope to be in the same boat one day.

    1. Jack, another thing that will happen is that you’ll STOP putting up with crap at work. Those little Friday night requests and annoying co-workers will become MUCH MORE ANNOYING once you pay off your debts.

  85. Bryan @ Just One More Year

    We have been in the middle of a 10-year debt snowball to pay off our personal and rental property mortgages. Our personal home was paid off in March 2015 and we have only until March 2016 before the last of our rental properties are paid off. We will then be fully debt free!

    I agree with you Sam, suspecting that our motivation and drive to work and make extra money in our side hustles will decline. We are actually looking forward to enjoying some of this money for fun and travel, instead of dropping big chunks on mortgages. I wonder if our spending will go up. :)

    1. I like how you have a SPECIFIC DATE for your payoff plan. That is huge, and I’ve got no doubt you’ll achieve your debt payoff goal.

      Please do report back then how you feel after paying of the rental property mortgages three months later. I’ll be curious to see whether your motivation to hustle drops!

    2. Most people try to pay off their mortgage by age 65 because they need that money to pay for Medicare insurance, some couples to the tune of $1000 a month and that’s without dental insurance which is a major scam.

  86. Look at what that sense of urgency made you do! Sure you lost that, but would you have ever gained it in the first place if you didn’t set that specific goal to pay it all off? I still plan to pay my mortgage off early, but I’m certainly not throwing everything at it. But I love hearing your take on it after having actually done it yourself. And it is great to think about the pros and cons (I realize there are mostly cons to paying it off early!)

    1. Howdy Maggie,

      Probably not as much w/out a goal! I did feel naturally uncomfortable shouldering another mortgage last year, hence maybe I would have naturally paid off the one I just did. That said, I told myself I’d pay off this mortgage I took out in 2003 after 10 years by June, 2013, and I didn’t b/c I didn’t have a focused goal! Hence, I encourage everyone to have goals.

      I’m just warning everybody on an early mortgage pay down mode to manage their liquidity carefully, and warn them that it’s not all lemon meringue pie after the mortgage is paid off. The feeling of accomplishment is ephemeral, and losing motivation can be very real, as is w/ me this year.

      I’m even not as gung ho publishing new posts anymore!


      1. Oh dear! That is bad. I was really hoping for all lemon meringue pie! NUTS! Thanks for the warning. :)

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